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OF  CALIFORNIA 

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LIBRARY 


THE    RISE  AND   PROGRESS 

OF  THE 

STANDARD   OIL   COMPANY 


BY 


GILBERT   HOLLAND   MONTAGUE 


NEW      Y  O  R 

K 

AND 

LONDON 

HARPER 

& 

BROTHERS 

P  U  B  L  1  S  H  E 

R  S 

jt 

MCMIII 

Copyright,  1902,  by  Gko.  II.  Ellis  Co. 
Copyright,  1903.  by  Gilbekt  Holland  Montagi-e. 


Alt  rights  reserved. 
Published  July,  1903. 


PREFACE 

The  study  of  the  Standard  Oil  Company— 
of  which  this  book  is  the  outcome— was 
undertaken  by  the  author  while  Ricardo 
Scholar  in  Economics  at  Harvard  Univer- 
sity for  the  year  1 900-1 901.  The  results 
of  this  study  were  reported  from  time  to 
time  to  the  Seminary  of  the  Department 
of  Economics,  and  eventually  were  printed 
in  the  Quarterly  Journal  of  Economics  pub- 
lished for  Harvard  University.  The  peri- 
od from  1865  till  1879  was  treated  in  the 
Quarterly  for  February,  1902,  in  an  article 
entitled  "The  Rise  and  Supremacy  of  the 
Standard  Oil  Company"  ;  and  in  the  Quar- 
terly for  February,  1903,  under  the  title  of 
"The  Later  History  of  the  Standard  Oil 
Company,"  the  narrative  was  continued  to 
iii 


Preface 

the  present.  By  the  courtesy  of  the  edi- 
tors and  the  publishers  of  the  Quarterly 
Journal  of  Economics  these  two  articles, 
which  together  compose  this  book,  are  re- 
printed unchanged. 

The  sources  of  this  history  are  the  re- 
ports of  official  investigating  commissions 
and  committees.  Chief  of  these  are  the 
report  of  the  "Hepburn"  committee  ap- 
pointed in  1879  by  the  Legislature  of  New 
York  to  investigate  railway  abuses;  the 
report  submitted  to  Congress  in  1888  by 
the  committee  appointed  to  investigate 
trusts,  and  the  report  of  the  Industrial 
Commission  appointed  by  the  President 
in  1898  and  making  its  preliminary  report 
on  trusts  in  1900. 

The  oil  business,  in  its  early  phase,  was 
the  reflex  of  prevalent  railway  methods. 
To  attempt  to  judge  the  situation  without 
first  ascertaining  the  standards  set  by  the 
railway  management  of  the  time  is  not 
merely  unfair,  it  is  subversive  of  all  his- 
torical accuracy.  The  South  Improve- 
iv 


Preface 

ment  Company  of  1872  is  an  instance  in 
point.  Its  interrupted  contracts  with  the 
railroads  have  since  been  generally  exe- 
crated, and,  as  it  is  shown  in  these  pages, 
probably  rightly.  But,  while  condemning 
these  contracts,  be  it  remembered  that 
they  followed  in  principle  the  best  lights 
of  the  railway  economy  of  the  period ;  that 
they  were  part  of  the  generally  accepted 
"evening  system,"  by  which  railways  in 
perfect  good  faith  protected  themselves 
against  disastrous  competition.  To  ap- 
point a  group  of  the  largest  shippers 
"eveners,"  and  in  return  for  a  special 
rebate  require  them  to  apportion  traffic 
among  the  roads,  seemed  at  that  time  a 
practice  both  inevitable  and  legitimate. 
This  knowledge  of  contemporary  railroad 
history  may  not  change  the  current  judg- 
ment upon  the  contracts  of  the  South 
Improvement  Company ;  but  it  helps  to  a 
fairer  distribution  of  the  blame,  if  there 
be  any,  between  the  railroads  and  the 
company. 

v 


Preface 

The  constant  reference  in  the  text  to 
authorities  in  the  foot-notes  will  not,  it  is 
hoped,  detract  from  the  narrative.  In  a 
matter  so  much  discussed  as  the  subject  of 
this  history  there  seems  no  longer  room 
for  unverified  opinion.  And  if  verification 
seems  sometimes  too  insistent,  the  impor- 
tance of  authenticating  facts  which  too 
often  have  been  loosely  disputed  should 
be  sufficient  excuse. 

Gilbert  Holland  Montague. 

Cambridge,  Massachusetts. 


THE    RISE    AND    PROGRESS 

OF    THE 

STANDARD    OIL    COMPANY 


THE    RISE    AND    PROGRESS 

OF    THE 

STANDARD    OIL    COMPANY 


The  rise  and  progress  of  the  Standard 
Oil  Company,  from  its  inception  in  1865 
till  its  control,  in  1878,  of  ninety  -  five 
per  cent,  of  the  oil  business  of  the  United 
States,  has  presented  itself  to  different 
critics  in  somewhat  different  characters; 
certain  conservative  writers  think  it  was 
largely  the  result  of  discriminations  in 
freight  rates,  extorted  by  more  or  less 
questionable  practices  from  the  easy  virtue 
of  the  railroads.  But  just  why  ;he  rail- 
roads found  it  expedient  to  grant  such 
unusual  favors,  and  why  this  particular 


The  Rise  and  Progress  of 

group  of  men,  above  all  others,  proved 
best  able  to  extort  such  favors,  no  one 
has  satisfactorily  explained.  Corruption 
of  the  railway  officials  has  been  vaguely 
suggested;  but  it  has  not  been  shown 
whence  this  group  of  men  had  the  means 
to  suborn  the  railways,  and  no  writer  has 
been  able  to  point  to  a  piece  of  precise 
evidence,  found  by  any  court  or  investi- 
gating committee  in  the  United  States, 
which  proved  such  subornation  of  rail- 
way officials,  though  it  is  not  inconceiva- 
ble that  some  evidence  may  exist.  Con- 
gressional and  legislative  committees,  on 
the  other  hand,  and  the  more  cautious 
writers  on  trusts,  have  been  equally 
put  to  it  to  find  in  those  acts  of  the  rail- 
ways which  eventually  made  the  Standard 
Oil  Company  supreme  any  self-interested 
motives.  <  The  fact  of  the  discrimination 
in  freight  rates  seems  to  account  for  the 
supremacy  of  the  Standard  Oil  Company. 
But  why  those  refiners  identified  with 
the   Standard    Oil    Company,    instead    of 


The  Standard  Oil  Company 

some  other  group  of  refiners,  should  per- 
sistently have  obtained  the  best  rates, 
has  been,  to  these  investigators,  a  baf- 
fling mystery. 

The  secret  of  this  strange  success  with 
the  railways  is  not,  however,  completely 
insoluble.  If  the  episodes  in  the  prog- 
ress of  the  Standard  Oil  Company  from 
1865  till  1877  be  carefully  studied,  the 
motives  of  every  act,  both  of  the  com- 
pany and  of  the  railways,  will  certainly 
be  revealed.  The  materials  for  this  study 
are  not  lacking.  A  vast  amount  of  ev- 
idence showing  the  ability  of  the  Stan- 
dard Oil  Company  to  turn  these  possi- 
bilities to  advantage  has  been  gathered 
by  various  commissions  and  investigating 
committees.  With  such  sources  of  infor- 
mation as  these  available,  an  intelligible 
narrative  may  readily  be  put  together. 
Not  only  may  each  act  of  the  company 
and  of  the  railways  be  authenticated,  but 
also,  at  each  step  in  the  progress,  the  in- 
creasing efficiency  and  importance  of  the 
3 


The  Rise  and  Progress  of 

company  may  be  estimated,  and  the  mo- 
mentary opportunities  of  railway  and  in- 
dustrial conditions  may  be  gauged.  And 
so  in  what  seems  at  first  sight  an  unac- 
countable and  suspiciously  rapid  growth 
may  be  discerned  signs  of  inevitable  devel- 
opment— the  operation  of  motives  which 
are,  at  any  rate,  explicable. 

1865-70 

In  1865,  when  Mr.  John  D.  Rockefeller 
began  in  a  small  way  to  refine  petroleum 
at  Cleveland,  Ohio,  the  oil  industry  was  in 
a  singularly  inchoate  state.  With  the  suc- 
cess of  Drake's  oil-well  at  Titus ville,  Penn- 
sylvania, in  1859,  refiners  had  been  re- 
leased from  the  necessity  of  distilling  coal 
into  petroleum  before  refining  petroleum 
into  kerosene;  and  at  the  same  time  the 
sources  of  petroleum  were  shown  to  be 
enormously  greater  than  they  had  ever 
before  been  guessed.  This  discovery  stim- 
ulated consumers  to  increased  use  of  lubri- 
4 


The  Standard  Oil  Company 

cants  and  burning  oils,  and  in  this  way 
rapidly  increased  the  demand  in  the  arts 
for  the  refined  product.  In  even  greater 
measure  it  encouraged  the  production  of 
crude  petroleum.  Within  a  year  after 
Drake's  success  wells  had  been  sunk  all 
around  Oil  City  and  along  the  Alleghany 
River.  In  1864  had  occurred  the  Cherry 
"run,"  followed  by  the  BenninghofT  and 
the  Pioneer  "runs"  and  the  sensational 
exploitation  of  Pithole  Creek.  While  Mr. 
Rockefeller  was  erecting  his  little  refinery, 
Pithole  City — now  a  field  sown  with  wheat 
— had  a  post-office  nearly  as  large  as  that 
of  Philadelphia.  From  Manitoulin  Island 
to  Alabama,  and  from  Missouri  to  Central 
New  York,  wells  had  been  bored  for  oil. 
So  rapid  had  been  the  increased  demand 
for  the  products  of  petroleum,  and  so  un- 
expected had  been  the  increase  of  supply, 
that  in  1865  existing  refineries  proved 
quite  inadequate  to  the  business  suddenly 
thrust  upon  them. 

The  difficulties  besetting  refiners  in  1865 

5 


The  Rise  and  Progress  of 

were  chiefly  such  as  could  be  cured  by  an 
increase  of  capital.  In  1861  the  best  wells 
had  been  thirty  miles  from  the  railroads. 
Because  of  the  lack  of  barrels  and  the  dif- 
ficulty of  transportation,  petroleum  had 
fallen  from  $20  a  barrel  to  almost  noth- 
ing. By  1863  boats  had  begun  transporting 
petroleum  down  Oil  Creek,  and  small  pipe- 
lines and  branch  railway  lines  had  been 
built.  In  1866  a  more  efficient  cylinder 
refining-still  was  invented,  casing  and  tor- 
pedoes were  coming  to  be  used  in  drilling, 
the  tank-car  began  to  replace  the  clum- 
sy flat  -  car  with  its  wooden  tubs,  and 
pipe-lines  regularly  transported  petroleum 
from  the  wells  to  the  railroads.  To  secure 
these  economies  in  refining,  small  concerns 
must  either  increase  their  capital  to  about 
$500,000  or  else  combine  into  this  larger 
and  more  efficient  unit  of  production. 
Mr.  Rockefeller  was  among  the  first  to  see 
the  exigency;  and  in  1867  he  united  into 
the  firm  of  Rockefeller,  Andrews  &  Flagler 
the  refineries  of  William  Rockefeller  & 
6 


The  Standard  Oil  Company 

Co.,  Rockefeller  &  Andrews,  Rockefeller  & 
Co.,  S.  V.  Harkness,  and  H.  M.  Flagler. 
The  reasons  for  this  union,  as  he  after- 
wards stated  them,  must  even  then  have 
been  evident:  "The  cause  leading  to  the 
combination  was  the  desire  to  unite  our 
skill  and  capital,  in  order  to  carry  on  a 
business  of  some  magnitude  and  impor- 
tance in  place  of  the  small  business  that 
each  had  separately  heretofore  carried 
on."1 

With  the  reorganization  of  the  firm  of 
Rockefeller,  Andrews  &  Flagler,  in  1870, 
into  the  Standard  Oil  Company  of  Ohio, 
with  capital  stock  of  $1,000,000,  the  first 
period  of  the  oil  industry  may  be  said  to 
close.  No  company  had  sought,  or,  in- 
deed, has  since  sought,  to  control  the  oil- 
fields. So  far  as  may  be  known,  no  refiner 
had  yet  organized  the  pipe-lines  to  his  ex- 
clusive advantage  or  exacted  of  the  rail- 
roads better  freight  rates  than  were  grant- 

1  Report  of  the  Industrial  Commission,  1900,  p. 
799- 

7 


The  Rise  and  Progress  of 

ed  to  his  competitor.  The  transportation 
of  oil  by  rail  and  by  pipe-line  was  left  to 
independent  companies,  and  it  was  only  by 
the  competition  and  by  the  improvements 
of  such  companies  that  the  cost  of  the 
transportation  had  been  reduced .  Till  1870 
the  competition  of  refiners  was  solely  con- 
cerned with  efficiency  of  production;  and, 
since  this  was  to  be  gained  only  by  refin- 
eries of  $500,000  capitalization  or  more, 
there  was  concentration  among  the  strong- 
er concerns  and  extermination  of  the  weak- 
er. By  its  process  of  concentration,  and 
solely  on  account  of  its  superior  efficiency, 
the  Standard  Oil  Company  of  Ohio  became 
in  1870  larger  than  most  of  its  competitors, 
and  produced  four  per  cent,  of  all  the  oil 
refined.1     After  1870  the  progress  of  the 


1  Evidence  as  to  the  capacity  of  the  Standard  Oil 
Company  of  Ohio  in  1870.  —  B.  B.  Campbell  (a 
prominent  opponent  of  the  Standard  Oil  Com- 
pany) (Investigation  of  Trusts,  Congress,  1888,  p. 
116): 

"Question.   How  large  at  that  time  [1870]  was  the 

8 


The  Standard  Oil  Company 

oil  industry,  generally,  and  the  precedence 
of  the  Standard  Oil  Company,  in  particu- 
lar, was  to  lie  in  the  direction  of  cheaper 
transportation  exacted  of  the  transporta- 
tion companies  by  the  refiners. 


interest  of  those  who  now  represent  the  Standard 
Oil  Trust? 

"Answer.  Not  much  larger  interest,  I  should 
judge,  than  some  of  their  competitors." 

Charles  T.  Morehouse  ("Hepburn"  Report,  New 
York,  1879,  p.  2624): 

"Q.  Now  tell  us  what  was  their  [the  Standard  Oil 
Company's]  capacity  then  [1870]  as  compared  with 
other  works  at  Cleveland  and  other  points  ? 

"A.  Not  as  large  as  some  of  the  other  works,  .  .  . 
but  comparing  very  favorably  with  such  works  as 
Charles  Pratt  &  Co.  and  three  or  four  in  the  oil 
regions." 

Lewis  Emery  (at  present  the  most  prominent  op- 
ponent of  the  Standard  Oil  Company)  (Report  of  the 
Industrial  Commission,   1900,  p.  646): 

"Mr.  H.  M.  Flagler  swore  they  had  a  capacity  of 
six  hundred  barrels  per  day  of  crude  oil  in  their  re- 
finery, the  production  at  that  time  [1870]  being 
about  sixteen  thousand  barrels  a  day.  That  would 
give  them  four  per  cent,  of  the  refining  business  at 
that  time.  At  that  time  there  existed  in  the  oil 
country,  spread  from  Louisville,  Kentucky,  to  Port- 
land, Maine,  more  than  two  hundred  and  fifty  re- 
fineries." 


The  Rise  and  Progress  of 

1870-74 

Though  the  progress  of  the  oil  industry 
from  1865  till  1870  be  said  to  have  deter- 
mined the  most  efficient  unit  of  produc- 
tion, and  though  the  advance  of  the  next 
seven  years  be  said  to  consist  in  cheapen- 
ing the  transportation  of  oil,  yet  it  must 
not  be  forgotten  that  a  considerable  ad- 
vance in  refining  took  place  in  this  later 
period.  Large  refineries  soon  began  man- 
ufacturing for  their  own  use  barrels,  tin 
cans,  boxes  for  enclosing  cans,  paint,  glue, 
and  sulphuric  acid.  By  experiment  the 
process  of  distillation  was  made  applicable 
to  qualities  of  petroleum  which  previously 
had  been  almost  useless.  By  improve- 
ment in  the  details  of  refining,  more  dur- 
able machinery,  tanks,  and  pumps  were 
constructed,  and  a  better  illuminant  was 
produced  at  less  cost.  In  1875  a  method 
had  been  devised  of  utilizing  the  residuum 
of  crude  petroleum  left  after  the  manu- 
facture of  illuminating  oil ;  and,  after  the 
10 


The  Standard  Oil  Company 

example  of  the  shale  works  of  Scotland, 
the  process  of  refining  lubricants  and  paraf- 
fine  wax  from  the  waste  that  previously 
was  used  as  fuel  had  been  adopted  in  the 
larger  refineries.  These  improvements, 
however,  were  by  no  means  so  considerable 
in  the  period  from  1870  till  1877  as  the  ad- 
vantage from  the  control  of  transporta- 
tion; and,  though  they  rendered  unprofit- 
able those  refineries  which  could  not  buy 
better  machinery  or  utilize  their  residuum, 
they  were  quite  too  generally  adopted  by 
large  refiners  to  account  for  the  growing 
pre-eminence  of  the  Standard  Oil  Com- 
pany. 

From  1870  till  1877,  then,  the  struggle  of 
the  refiners  was  chiefly  for  transportation 
facilities.  Until  the  issuance  of  the  so- 
called  "  Rutter  Circular,"  in  1874,  the  ad- 
vantage they  sought  lay  chiefly  in  dis- 
criminating freight  rates.  From  1874  till 
1877  the  large  refiners  sought  both  to  ob- 
tain special  rates  from  the  railroads  and  to 
organize  into  systems  for  their  own  ad- 
11 


The  Rise  and  Progress  of 

vantage  the  bewildering  net -work  of  pipe- 
lines that  had  been  building  since  1869. 
By  surpassing  skill  in  both  regions  of  activ- 
ity the  Standard  Oil  Company  grew  in 
seven  years  from  a  concern  controlling  four 
per  cent,  of  the  refined  oil  output  into  one 
controlling  ninety-five  per  cent.  Organi- 
zation of  the  pipe-lines  came  late,  because 
of  the  excessive  amount  of  capital  it  de- 
manded. Opportunities  for  discriminat- 
ing freight  rates,  however,  presented  them- 
selves early.  How  the  Standard  Oil  Com- 
pany availed  itself  of  the  unique  railway 
conditions  and  of  the  practices  common  in 
the  freight  traffic  of  that  time  is  one  of  the 
most  sensational  episodes  in  the  history  of 
American  railroads. 

By  1 87 1  the  New  York  Central,  the 
Erie,  and  the  Pennsylvania  railroads  had 
completed  connections  that  afforded  them 
entrance  to  Chicago,  and  the  great  struggle 
for  the  traffic  of  the  West  had  set  in.  The 
roads  were  so  poor,  and  the  necessity  for 
revenue  so  great,  that  rate  wars  had  begun 
12 


The  Standard  Oil  Company 

as  early  as  1869,  when  the  New  York  Cen- 
tral and  the  Pennsylvania  roads  had  se- 
cured connection  with  Chicago.  With  the 
entrance  of  the  Erie  road  and,  in  1874,  of  ^j 
the  Baltimore  and  Ohio  into  Chicago,  the 
competition  for  traffic  throughout  the  re- 
gion of  the  trunk  lines  became  more  em- 
bittered. During  the  years  from  1869  till 
1873  the  agents  of  the  roads  met  annually 
at  New  York  to  agree  upon  freight  rates; 
and  afterwards,  in  order  to  get  traffic,  they 
regularly  broke  their  agreement.  Every 
year  during  this  period  fourth-class  rates 
from  Chicago  to  New  York  fell  from  about 
80  cents  per  one  hundred  pounds  in  De- 
cember to  about  25  cents  in  August  and 
September.  This  reckless  competition  for 
traffic  was  extended  to  the  oil  regions. 
The  Pennsylvania  Railroad,  which  had  the 
earliest  and  closest  connection  with  the 
centre  of  petroleum  production  at  Oil 
City,  hauled  oil  to  Pittsburg,  a  distance 
of  eighty  miles,  and  to  Philadelphia,  a 
distance  of  four  hundred  miles. 
13 


The  Rise  and  Progress  of 

The  Erie  Railroad,  which  had  no  direct 
communication  with  the  oil  country,  ef- 
fected an  entrance  by  a  connection  with 
the  Atlantic  and  Great  Western  road,  and 
hauled  oil  from  Oil  City  to  New  York,  a 
distance  of  five  hundred  and  fifty  miles. 
The  New  York  Central  Railroad  entered 
Oil  City  by  connections  at  Cleveland,  and 
hauled  oil  to  New  York,  a  distance  of  seven 
hundred  and  forty  miles.  Just  as  agents 
of  the  roads  had  annually  agreed  upon  a 
rate  from  Chicago  to  the  seaboard,  making 
the  charge  80  cents  by  each  road  with 
a  differential  of  5  cents  in  favor  of  Balti- 
more and  Philadelphia,  so  in  the  case  of  the 
oil  traffic  the  same  rate  was  charged  by 
each  road  on  oil  moving  from  Oil  City  to 
the  seaboard.  The  effect  of  this  "group 
rate"  was  naturally  displeasing  to  refiners 
at  Pittsburg :  it  deprived  them  of  all  geo- 
graphical advantage,  and  enabled  their 
competitors  at  Cleveland — among  others, 
the  Standard  Oil  Company— to  ship  oil 
seven  hundred  and  forty  miles  by  the  New 
14 


The  Standard  Oil  Company 

York  Central  Railroad  at  precisely  the 
rate  they  were  charged  for  a  haulage  of 
four  hundred  miles. 

Clearly  this  was  a  coincidence  in 
rates  not  based  upon  any  correspond- 
ing coincidence  of  cost,  and  as  such 
constituted  a  case  of  discrimination.  The 
competition  of  the  railroads,  however, 
was  so  fierce  as  to  make  no  other  ad- 
justment practicable.  In  the  practice 
and  theory  of  railway  rates,  moreover, 
ample  economic  justification  is  to  be 
found. 

Because  of  the  futility  of  basing  rates  on 
cost  of  service,  a'system  of  freight  rates 
has  arisen  which  favors  certain  classes  of 
goods,  certain  localities,  and  certain  in- 
dividuals. By  lowering  rates  on  cheap 
goods,  by  lowering  rates  at  competitive 
points,  and  by  lowering  rates  to  bene- 
fit growing  concerns,,  the  revenue  of  the 
railways  is  greatly  increased  with  very 
slight  increase  in  its  expenses.  By  lower- 
ing rates  in  those  three  ways,  then,  and 
i5 


The  Rise  and  Progress  of 

charging  "what  the  traffic  will  bear,"  the 
railways  may  do  business  most  cheaply, 
give  lowest  rates,  and  make  the  most 
profit.  In  pursuance  of  this  principle, 
discriminations  of  the  first  sort  have  been 
practised  from  the  earliest  times.  "Group 
rates" — a  form  of  the  second  sort  of  dis- 
crimination— have  been  freely  made  since 
1869,  when  the  railways  first  made  the 
rates  uniform  on  all  the  routes  between 
the  competitive  points  of  New  York  and 
Chicago.  Similar  "group  rates"  have 
since  been  established  in  the  coal  traffic 
from  the  anthracite  regions  to  the  sea- 
board, and  in  the  fruit  traffic  of  California 
and  Florida.  The  prominence  of  such 
"group  rates"  in  the  pooling  agreements 
of  the  trunk  lines  in  1873,  1875,  and  1877, 
and  in  the  "Southwestern  pooling  agree- 
ments" of  1879,  show  how  general  was 
their  acceptance.  So  fundamental,  in- 
deed, have  they  become  in  American  rail- 
way tariffs  that  the  Interstate  Commerce 
Commission  has  repeatedly  sanctioned 
16 


The  Standard  Oil  Company 

them.1  Discriminations  of  the  third  sort 
were  common  throughout  the  period  from 
1870  till  1874,  and  by  1875  the  "evening 
system" — a  form  of  the  third  class  of  dis- 
criminations which  the  South  Improvement 
Company  closely  anticipated — had  become 
especially  prominent  in  the  cattle  business 
between  New  York  and  Chicago.2    These 

1  In  the  milk  cases  (Report  of  the  Interstate  Com- 
merce Commission,  ii.,  p.  273;  vii.,  p.  97)  the  principle 
of  the  "  group  rates  "  is  interestingly  discussed  from 
the  most  conservative  stand-point. 

2  The  principle  of  the  "cattle  eveners'  agreement" 
has  been  stated  as  follows:  "The  trunk  lines  leading 
to  New  York  agreed  upon  a  per  cent,  of  the  busi- 
ness which  each  road  should  receive,  and  appointed 
three  cattle  eveners,  whose  duty  it  was  to  see  that 
the  shipments  were  made  over  all  the  roads  in  the 
agreed  proportions;  and  for  that  service  they  were 
to  receive  $15  a  car  .  .  .on  every  car-load  of  cattle 
shipped  from  the  West  to  New  York,  no  matter  by 
whom  shipped.  .  .  .  The  commission  was  later  re- 
duced to  $10.  Now  every  man  is  made  his  own 
evener — i _em>  if  he  ships  his  cattle  by  the  road  he 
is  requested  to  he  gets  a  certain  price;  if  he  ships 
contrary  to  directions  his  price  is  made  $10  higher; 
and  this  is  said  to  work  very  well,  the  rates  via  all 
routes  of  course  being  the  same." — Report  of  the 
"Hepburn"  Committee,  New  York,  1879,  pp.  69,  70. 

17 


The  Rise  and  Progress  of 

various  sorts  of  discrimination,  then  — 
special  tariffs,  "group  rates,"  and  "even- 
ing systems" — must  all  be  regarded  as 
practices  inevitable  in  the  railway  man- 
agement of  the  period — as  essential  con- 
sequences of  railway  economy  in  its  devel- 
opment. fc< 

In  one  way  or  another  every  advantage 
obtained  in  rates  by  the  large  refiners  at 
Cleveland,  in  the  period  from  1870  till 
1874,  may  be  classified  under  one  of  these 
three  sorts  of  discrimination.  As  soon  as 
oil  became  a  prominent  export  they  bene- 
fited, with  all  other  refiners,  in  the  special 
rates  on  oil  in  barrels  and  in  tanks.  Under 
the  "group  rates"  on  oil  from  Oil  City  to 
the  seaboard  they  enjoyed  local  discrimi- 
nation— a  discrimination  doubtless  annoy- 
ing to  refiners  on  the  shorter  routes,  but 
not  essentially  different  from  that  of  the 
"group  rate"  from  Chicago  to  New  York, 
or  those  later  enforced  by  pools  and  au- 
thorized by  the  Interstate  Commerce  Com- 
mission. And  in  1872  they  obtained  from 
18 


The  Standard  Oil  Company 

the  railroads,  under  the  abortive  contract 
of  the  South  Improvement  Company,  an 
"evening  arrangement"  that,  whether 
wrongly  or  not,  has  since  become  a  hissing 
and  a  by-word  with  every  opponent  of  the 
Standard  Oil  Company. 

Early  in  187 1  the  advantage  of  Cleve- 
land over  Pittsburg,  as  a  refining  centre, 
had  become  evident.  Cleveland  not  only 
enjoyed  the  same  railroad  rates  that  Pitts- 
burg had,  but  also  had  water  communica- 
tion to  the  East  by  way  of  the  great  lakes 
and  the  Erie  Canal.  Pittsburg  depended 
almost  entirely  for  transportation  upon  the 
railroads.  Cleveland,  however,  could  at 
any  time  avail  herself  of  the  competition 
of  rail  and  water  transportation  by  taking 
to  lake  vessels  whenever  the  charges  of  the 
New  York  Central  Railroad  were  unsatis- 
factory. 

Cleveland,  as  a  competitive  point,  had 
the  oil  traffic  of  the  New  York  Central  at 
her  mercy.  Unless  the  refiners  at  Cleve- 
19 


The  Rise  and  Progress  of 

land  were  allowed  low  freight  rates,  the 
New  York  Central  must  see  its  traffic  di- 
rected to  lake  vessels.  As  the  danger  of 
such  loss  became  more  imminent,  the 
New  York  Central  was  obliged  to  grant 
greater  and  greater  favors  to  the  re- 
finers. And  when,  in  1 871,  an  unexpect- 
ed shift  in  the  ■  centre  of  oil  production 
threatened  the  entire  refining  business 
at  Cleveland,  the  railroads  dependent  on 
this  business  were  stirred  to  unusual 
action. 

Beginning  in  1871,  at  the  Clarion  River, 
remarkable  discoveries  of  petroleum  had 
been  made  throughout  Butler  and  Clarion 
counties,  in  the  region  extending  five 
miles  beyond  Antwerp,  and  southwest- 
ward  a  distance  of  fifteen  miles  to  Millers- 
town  and  Greece  City.  "The  develop- 
ment southward,"  says  the  editor  of  the 
Oil  City  Derrick,1  "brought  about  condi- 
tions through  which  some  of  the  most  im- 

1  P.  C.  Boyle,  Report  of  the  Industrial  Commission, 
1900,  p.  421. 

20 


The  Standard  Oil  Company 

portant  railroads  of  the  country  might  be 
deprived  of  a  share  of  the  oil -carrying 
trade.  The  Pennsylvania  Railroad,  how- 
ever, was  not  affected  by  the  transfer  of 
activities  from  the  Venango  region  to  that 
of  Butler  and  Clarion  counties.  The 
northern  railway  lines — namely,  the  Erie 
and  New  York  Central — -were  naturally 
affected  by  the  transfer  of  operations  to 
distant  fields,  which  they  could  not  reach 
with  their  existing  connections.  The  first- 
named  road  was  materially  aided  by  the 
gathering  lines  of  the  Pennsylvania  Trans- 
portation Company,  operated  by  Henry 
Harley ;  but  the  New  York  Central  and  its 
connections  were  left  without  petroleum- 
feeders  of  any  description."  As  usual  in 
new  developments  of  territory,  the  in- 
crease in  production  due  to  the  large  capac- 
ity of  the  wells,  the  over-capacity  of  the 
pipe-lines  in  the  older  oil-fields,  and  the 
over-production  of  refining  plants  which 
had  taken  place  in  the  last  two  years — all 
these  had  conspired  to  make  the  transpor- 
21 


The  Rise  and  Progress  of 

tation  and  refining  of  oil  unremuner- 
ative  throughout  the  petroleum  coun- 
try, and  especially  unprofitable  at  Cleve- 
land. 

To  remedy  this  situation,  a  combination 
of  the  railroads  and  certain  refiners  was 
planned.  "  It  had  its  inception,"  to  quote 
again  the  editor  of  the  Oil  City  Derrick,1 
"with  certain  Philadelphia  and  Pittsburg 
refiners,  with  an  agreement  for  co-opera- 
tion with  certain  Cleveland  refiners.  But 
philosophical  minds,  viewing  the  subject 
from  this  distance,  are  agreed  that  it  had 
its  origin,  as  a  matter  of  fact,  with  the  rail- 
road interests  rather  than  with  the  oil 
interests."  The  form  which  this  com- 
bination took  was  a  contract  between  the 
railroads  and  certain  refiners  of  Pitts- 
burg, Philadelphia,  and  Cleveland  organ- 


1  Boyle,  Report  of  the  Industrial  Commission,  1900, 
p.  42 1 .  Mr.  Boyle's  impartiality  has  been  questioned 
by  opponents  of  the  Standard  Oil  Company  (see 
Report  of  the  Industrial  Commission,  1900,  p.  398), 
but  has  never  been  disproved. 
22 


The  Standard  Oil  Company 

ized  into  the  South  Improvement  Com- 
pany. 

By  an  act  of  the  Pennsylvania  Legislat- 
ure on  May  i,  1871,  the  South_Improve- 
ment  Company  had  been  created  and  vest- 
ed with  all  the  powers  conferred  by  the  act 
of  April  7,  1870,  upon  the  Pennsylvania 
Company.  The  powers  of  the  company 
included  authority  "to  construct  and  op- 
erate any  work  or  works,  public  or  private, 
designed  to  include,  increase,  facilitate,  or 
develop  trade,  travel,  or  the  transporta- 
tion of  freight,  live-stock,  passengers,  or 
any  traffic  by  land  or  water,  from  or  to  any 
part  of  the  United  States."  !  Of  the  two 
thousand  shares  of  this  company,  nine 
hundred  were  owned  by  Messrs.  H.  M. 
Flagler,  O.  H.  Payne,  William  Rockefeller, 
H.  Bostwick,  and  J.  D.  Rockefeller,  who 
later  were  to  become  prominent  in  the 
Standard  Oil  Company.2 

1  Report  of  the  Industrial  Commission,  1900,  p.  607. 
1  Lewis    Emery,    Report   of   the   Industrial   Com- 
mission, 1900,  p.  619. 

23 


The  Rise  and  Progress  of 

On  January  18,  1872,  the  South  Im- 
provement Company  effected  the  desired 
combination  by  completing  contracts  with 
the  Pennsylvania,  the  New  York  Central, 
and  the  Erie  railroads.  According  to  the 
contracts1  the  South  Improvement  Com- 
pany agreed  to  ship  forty-five  per  cent,  of 
all  the  oil  transported  by  it  over  the  Penn- 
sylvania Railroad,  and  to  divide  the  re- 
mainder equally  between  the  Erie  and  the 
New  York  Central  railroads,  to  furnish 
suitable  tankage  facilities  for  shipping  pe- 
troleum and  receiving  it  at  its  destina- 
tion, and  to  keep  records  of  the  amount  of 
petroleum  and  its  products  shipped  over 
the  railroads  both  by  itself  and  by  other 
parties.  The  railroads  in  return  agreed  to 
allow  the  South  Improvement  Company 
rebates  on  all  petroleum  and  its  products 
carried  by  them,  to  charge  all  other  parties 
not  less  than  the  full  rates  specified  in  the 

•These  contracts  are  printed  in  full  in  "Hep- 
burn" Report,  Exhibits,  New  York,  1879,  pp.  418- 
449. 

24 


The  Standard  Oil  Company 

contract,1  to  furnish  to  the  South  Improve- 
ment Company  way-bills  of  all  petroleum 
or  its  product  transported  over  their  lines 
by  any  parties  whatsoever,  and,  finally, 
"at  all  times  to  co-operate,  as  far  as  it 
legally  may,  with  the  party  hereto  of  the 
first  part,  to  maintain  the  business  of  the 
party  hereto  of  the  first  part  against  loss 
or  injury  by  competition,  to  the  end  that 
the  party  hereto  of  the  first  part  may  keep 

1  Rates  and  rebates  according  to  contract: 
"On  Crude  Petroleum 

Gross  Rate  (a) .     Rebate  (a) . 

"From  any  common  point  to 

Cleveland $0.80  $0.40 

Pittsburg 80  .40 

New  York 2.56  1.06 

"On  Refined  Oil,  etc. 

"  From  Pittsburg  to  New  York     $2.00         $0.50 
"From  Cleveland  to  New  York  2.00  .50" 

"This  contract  provided  that  the  railways  should 
increase  the  freight  to  about  double  what  they  had 
been  charging  on  all  oil  shipped." — M.  L.  Lock- 
wood,  Report  of  the  Industrial  Commission,  1900, 
P-  385- 

(a)  For  each  barrel  of  forty-five  gallons.  "Hep- 
burn" Report,  Exhibits,  New  York,  1879,  p.  422. 

25 


The  Rise  and  Progress  of 

up  a  remunerative,  and  so  a  full  and  regu- 
lar business,  and  to  that  end  shall  lower  or 
raise  the  gross  rates  of  transportation  over 
its  railroads  and  connections,  as  far  as  it 
legally  may,  for  such  times  and  to  such  ex- 
tent as  may  be  necessary  to  overcome  such 
competition."  The  aim_ of _the^  railroads, 
as  avowed  in  the  preamble,  was  plainly  an 
increase  in  traffic :  "  whereas  the  magnitude 
and  extent  of  the  business  and  operations 
to  be  carried  on  by  the  party  hereto  of  the 
first  part  will  greatly  promote  the  interest 
of  the  party  hereto  of  the  second  part,  and 
make  it  desirable  for  it  by  fixing  certain 
rates  of  freight,  drawbacks,  and  rebates, 
and  by  the  other  provisions  of  this  agree- 
ment to  encourage  the  outlay  proposed  by 
the  party  hereto  of  the  first  part,  and  to 
facilitate  and  increase  the  transportation 
to  be  received  from  it,  .  .  .  the  party 
hereto  of  the  second  part  covenants  and 
agrees."  And  for  the  attainment  of  that 
end,  the  railroads  reserved  the  right  to 
grant  similar  rebates  and  advantages  to 
26 


The  Standard  Oil  Company 

any  other  party  who  should  furnish  an 
amount  of  transportation  equal  to  that 
furnished  by  the  South  Improvement 
Company,  and  equal  facilities  for  promot- 
ing the  petroleum  trade. 

In  general  outline  the  contract  was  very 
like  those  subsequently  made  with  the 
grain-elevator  owners  in  the  Northwest, 
and  with  the  cattle-shippers  of  Chicago. 
Throughout  this  period  it  was  the  policy 
of  the  railroads  to  bind  to  themselves  grow- 
ing businesses,  in  which,  as  in  the  elevator 
and  refining  industries,  considerable  cap- 
ital and  much  enterprise  were  necessary 
in  order  to  succeed,  and  by  granting  to 
these  concerns  special  rates  to  build  up 
trade  for  the  industries  and  traffic  for 
themselves.  By  this  form  of  personal 
discrimination  the  railroads  entering  New 
York  had  built  up  traffic  for  themselves 
and  business  for  A.  T.  Stewart,  who  was 
competing  for  the  market  in  the  Central 
West  with  Field,  Leiter  &  Co.,  of  Chicago. 
Where  the  competition  for  traffic  was  keen, 
27 


The  Rise  and  Progress  of 

the  railroads  usually  contracted  with  the 
strongest  shipper  or  group  of  shippers  to 
carry  freight  at  a  special  rate,  or  else — as 
in  the  case  of  the  large  cattle-shippers  at 
Chicago  and  the  South  Improvement  Com- 
pany in  the  oil  regions  —  appointed  the 
group  "  evener,"  and  in  return  for  a  special 
rebate  required  it  to  apportion  traffic  among 
the  roads  according  to  a  fixed  ratio.1 

Such  are  the  economic  grounds  on  which 
to  judge  this  contract.  Popular  judg- 
ment, however,  was  much  less  deliberate. 
On  January  1 8th  the  contract  was  signed ; 
and  on  February  27th,  the  day  after  the 
contract  went  into  effect,  an  excited  mass- 
meeting  was  held  at  Titusville  and  an  or- 
ganization to  oppose  the  new  company 
hastily  effected.  At  once  a  complete 
embargo  was  placed  on  the  sale  of  oil  to 

1  As  to  the  frequency  of  such  discriminations,  see 
the  "Hepburn"  Report,  New  York,  1879,  pp.  48-71. 
The  plan  of  the  cattle-eveners'  contract  is  contained 
in  the  "  Hepburn"  Report,  New  York,  1879,  p  70;  of 
A.T.  Stewart's  contract,  "  Hepburn"  Report,  pp.  452, 
808,   1597. 

28 


The  Standard  Oil  Company 

the  South  Improvement  Company.  Com- 
mittees were  hurriedly  despatched  to  the 
railway  officials,  to  Harrisburg,  and  to 
Washington.  On  March  15th  a  resolution 
was  introduced  into  the  House  of  Repre- 
sentatives at  Washington  to  investigate 
the  South  Improvement  Company.  On 
March  25th,  in  an  agreement  signed  by  the 
independent  refiners,  the  railroads  public- 
ly abrogated  their  contract  with  the  com- 
pany, and  announced  that  "all  arrange- 
ments for  the  transportation  of  oil  after 
this  date  shall  be  upon  a  basis  of  perfect 
equality  to  all  shippers,  producers,  and 
refiners,  and  that  no  rebates,  drawbacks, 
or  other  arrangements  of  any  character 
shall  be  made  or  allowed  that  will  give  any 
party  the  slightest  difference  in  rates  or 
any  discrimination  of  any  character  what- 
ever;1 and,  with  this  announcement,  they 
issued  new  rates  about  forty  per  cent, 
lower  than  those  provided  by  the  contract. 

1  Investigation  of  Trusts,  Congress,  1888,  p.  361. 
29 


The  Rise  and  Progress  of 

On  April  6th,  before  it  had  the  opportunity 
to  do  any  business,  the  South  Improve- 
ment Company  was  summarily  deprived 
of  its  charter  by  the  Pennsylvania  Legis- 
lature. The  company  has  never  since  had 
an  apologist.  The  Standard  Oil  Company, 
in  spite  of  its  part  in  the  unfortunate  com- 
bination, has  always  disapproved  of  the 
contract.1  And  the  bitterest  reproach 
which  opponents  of  the  Standard  Oil  Com- 
pany heap  against  it  is  the  taunt  that  the 
contract  of  the  South  Improvement  Com- 
pany was  renewed  with  the  Standard  "  alli- 
ance," which  was  then  forming.2 

1  John  D.  Archbold,  Report  of  the  Industrial  Com- 
mission, 1900,  p.  540: 

"  I  have  no  knowledge  of  any  relations  on  the  part 
of  the  Standard  Oil  Company  succeeding  to  the 
South  Improvement  Company  whatever.  I  have 
been  an  opponent  of  the  South  Improvement  Com- 
pany, as  you  well  know.  I  have  disapproved  of  it 
in  theory,  and  practically  disapproved  of  it  to-day. 
I  want  to  say  that  the  statements  that  what  was  the 
South  Improvement  Company  is  continued  in  the 
Standard  are  not  true;  if  they  had  been  true,  I 
would  not  have  been  in  it." 

3  Such   statements   are   made  by    H.    D.    Lloyd, 

30 


The  Standard  Oil  Company 

In  the  condition  which  led  in  1872  to 
the  formation  and  the  contract  of  the 
South  Improvement  Company  lies  the  fact 
that  must  decide  economic  opinion  upon 
the  company.  Since  1867,  competition  in 
refining  methods  had  ruined  most  of  the 
smaller  refineries.  By  1869,  all  but  fifteen 
had  for  this  reason  been  obliged  to  sell  out 
to  more  efficient  concerns.1  In  1869  began 
the  competition  between  railways  that  re- 

Wealth  against  Commonwealth,  pp.  58-60;  J.  F.  Hud- 
son, Railways  and  the  Republic,  pp.  70,  71;  E.  C. 
Patterson,  "Hepburn"  Report,  New  York,  1879,  p. 
1693;  W.  T.  Scheide,  Ibid.,  p.  2766;  A.  B.  Hepburn, 
Report  of  the  Committee,  Ibid.,  p.  42 ;  B.  B.  Campbell, 
Investigation  of  Trusts,  Congress,  1888,  p.  364;  Lewis 
Emery,  Report  of  the  Industrial  Commission,  1900, 
pp.  639-645;  George  Rice,  Ibid.,  p.  694.  No  con- 
firming evidence  has  been  offered. 

1  H.  H.  Rogers  ("Hepburn"  Report,  New  York, 
1879,  p.  2605): 

"Q.  Was  the  Standard  Oil  Company  at  that  time 
[1872]  a  large  producer?     A.  Oh  yes! 

"Q.  Was  the  Standard  Oil  Company  at  that  time 
the  largest  producer?     A.  The  largest  refiner,  yes. 

"Q.  Where?  A.  In  Cleveland  and  New  York, 
and  I  think  they  had  some  interests  in  the  oil  re- 
gions." 

31 


The  Rise  and  Progress  of 

suited  almost  immediately  in  personal  dis- 
crimination in  rates,  and  hastened  the 
extermination  of  such  refineries  as  were 
already  declining.  Over-production  of  oil 
in  1870  and  1871  had  increased  the  de- 
pression, so  that  in  1872,  when  the  centre 
of  operations  was  shifted  southward,  and 
ruin  threatened  the  large  refineries  as  well 
as  the  small,  feeling  throughout  the  indus- 
try was  extremely  nervous.  According  to 
their  usual  practice  at  that  time  the  rail- 
ways cast  about  for  the  strongest  group  of 
refiners  with  whom  they  might  ally  to 
protect  their  traffic.  That  the  South  Im- 
provement Company  was  the  strongest 
group  of  refiners  has  never  been  disputed. 
In  1872  the  Standard  Oil  Company  was 
the  largest  concern  in  the  oil  region,  and 
the  combined  capacity  of  the  refineries  or- 
ganized into  the  South  Improvement  Com- 
pany far  exceeded  that  of  the  unorganized 
refiners.1     That  the  industrial  efficiency  of 

1  Digest  of  evidence,  Report  of  the  Industrial  Com- 
mission, 1900,  p.  148:  "  Mr.  Emery  insists  vigorously 

32 


The  Standard  Oil  Company 

the  favored  company  was  superior  to  that 
of  other  refiners  seems  equally  demon- 
strable. By  the  sheer  superiority  of  its 
organization,  and — so  far  as  is  known — 
quite  unaided  by  unusual  discrimination 
in  rates,  the  Standard  Oil  Company  had 
obtained  in  1872  its  pre-eminent  position. 
By  similar  efficiency  of  capital  and  ability 
other  members  of  the  South  Improvement 
Company  had  survived  and  grown,  while 
their  poorer  competitors  had  suffered  from 
depression.  From  the  railway  point  of 
view,  then,  the  situation  in  1872  justified 
a  special  contract;  and  in  the  South  Im- 
provement Company  was  presented  the 
fittest  party  to  such  a  contract. 

Whether  the  rebate  provided  by  the 
contract  excessively  rewarded  the  com- 
pany for  its  services  as  "  evener"  is  a  ques- 
tion of  fact,  not  to  be  settled  off-hand. 
The  violent  popular  uprising,  the  quick- 

that  it  would  have  been  absolutely  impossible  for 
any  one  else  to  secure  the  amount  of  business  neces- 
sary to  meet  this  requirement  of  railways." 

3  33 


The  Rise  and  Progress  of 

ness  with  which  the  contract  was  with- 
drawn by  the  railroads,  the  reticence  and 
subsequent  penitence  of  all  concerned  in 
making  it,  and  the  odium  in  which  it  has 
since  been  held  by  both  friends  and  ene- 
mies of  the  Standard  Oil  Company  may 
indeed  be  regarded  as  evidence  that  its 
provisions  were  unwarranted.  The  prin- 
ciple of  the  contract,  however — the  com- 
bination of  both  the  railways  and  the 
strongest  refiners  to  restore  profitable 
stability  to  traffic  and  industry — was  in- 
evitable in  the  practice  and  theory  of 
railway  economics. 

The  panic  caused  in  1872  by  publishing 
the  contract  of  the  South  Improvement 
Company,  though  never  more  than  fright 
— for  the  contract  was  never  kept — still 
seemed  to  make  the  situation  more  acute. 
Under  the  stress  of  such  difficult  condi- 
tions, small  concerns  gave  place  to  large, 
and  large  concerns  combined  into  yet 
greater  ones.  Throughout  1872,  1873, 
and  1874  small  refiners  were  driven  into 
34 


The  Standard  Oil  Company 

insolvency  or  forced  into  selling.  The 
causes  assigned  for  this  are  two.  "The 
over-production  of  1873,  1874,  and  1875," 
explains  a  leading  opponent  of  the  Stand- 
ard Oil  Company,  "and  the  consequent 
almost  entire  destruction  of  petroleum 
values  gave  the  Standard  Oil  Company, 
with  its  organization  and  capital,  almost 
the  desired  monopoly."  x  Discrimination 
in  freight  rates  in  favor  of  the  large  re- 
finers was  the  other  and  more  aggravating 
cause.  For,  though  they  never  resumed 
the  contract  of  the  South  Improvement 
Company,  nevertheless,  at  the  solicitation 
of  refiners  who  had  signed  the  agreement 
of  March  25,  1872,  the  railroads  soon  re- 
sumed the  practice  of  increasing  traffic  by 
giving  special  rates  to  the  large  shippers;2 

1  Letter  of  the  Delegation  of  Oil  Producers,  deliv- 
ered to  the  Pennsylvania  Railroad  September  n, 
1877.  Quoted  in  Investigation  of  Trusts,  Congress, 
1888,  p.  363. 

2  George  R.  Blanchard,  of  the  Erie  Railroad 
("Hepburn"  Report,  New  York,  1879,  p.  3394): 

"  I  was  then  convinced  .  .  .  that  the  agreement  of 

35 


The  Rise  and  Progress  of 

and,  though  their  motives  were  —  so  far 
as  evidence  is  shown — thoroughly  self-in- 

March  25  lasted  less  than  two  weeks,  and  that  at 
an  early  date  the  Empire  Line  [later  the  great  rival 
of  the  Standard]  was  receiving  a  large  drawback  or 
commission  from  the  Pennsylvania  Railroad,  which 
was  either  being  shared  with  the  shippers  or  an  ad- 
ditional amount  was  being  allowed  to  them.  ...  It 
is,  therefore,  clear  that  one  of  the  largest  shippers 
who  signed  that  March  agreement  did  not  feel  that 
it  bound  him  to  pay  the  rates  he  had  agreed  to 
pay;  and  he  gave  convincing  reasons  to  believe  that 
others,  signers  and  parties  to  that  agreement,  did 
not  pay  them,  and  possessed  equal  or  greater  ad- 
vantages by  way  of  rival  routes.  ...  I  opened  nego- 
tiations to  increase  our  traffic,  which  resulted  in  an 
agreement,  with  the  concurrence  of  the  Atlantic  and 
Great  Western,  as  follows: 

"Erie  Railway  Co., 
"Office  of  Second  Vice-President, 
"New  York,  March  29,  1873. 
"Memorandum 
"Between  Mr.  John  D.  Archbold  [of  the  Stand- 
ard], Mr.  Bennett,  and  Mr.  Porter,  and  Mr.  Osborn, 
and  myself.      Rate  for  March,  '73,  to  be  132 \  from 
Union  [published  rate,  $1.65].     Rate  thereafter  to 
be  $1.25  from  same  point  as  the  maximum  for  1873. 
If  the  common-point  rate  is  made  from  Titusville  at 
any  time  in  1873,  on  bona  fide  shipments,  Erie  and 
Atlantic  and  Great  Western  will  make  same  rate 
from  same  date.     With  this  rate  the  refiners  agree 

36 


The  Standard  Oil  Company 

terested,1  they  hastened  the  absorption  of 
the  small  refineries  by  the  larger,  and  es- 
pecially the  expansion  of  the  Standard  Oil 

to  give  us  their  entire  product  to  New  York  for  the 
year,  and  the  preference  always  at  same  rate  as 
actual  shipment  by  other  lines. 
"  (Signed) 

"John  D.  Archbold. 

"G.  R.  Blanchard. 

"...  I  also  learned  at  that  time  that  this  pro- 
ducers' agreement  [of  March  25]  was  exploded  by 
the  action  of  the  Producers'  Union  before  that  time. 
.  .  .  These  facts  effectually  refute  the  testimony  of 
Mr.  Patterson,  that  the  agreement  of  March  25  con- 
tinued more  than  two  years,  or  any  period  beyond 
three  weeks,  at  the  rates  it  stipulated,  and  show 
that  at  least  two  of  its  signers  did  not  feel  bound  to 
pay  the  rates  it  named,  and  that  they  and  others 
by  other  lines  endeavored  immediately  after  it  was 
signed  to  obtain,  and  did  secure,  reduced  rates,  as 
usual  before  its  execution,  and  peddled  oil  among 
the  railroads  wherever  they  could  secure  an  advan- 
tage, however  small,  over  each  other  on  the  rail- 
roads." 

1  Mr.  Paul  de  Rousiers  has  suggested  that  the 
motives  of  the  railroad  might  have  been  mixed; 
that  their  act  might  have  been  inspired  by  inevitable 
railway  policy  reinforced  by  bribes  from  the  Stand- 
ard Oil  Company.  No  proven  case  of  bribery  is 
recorded,  however,  by  any  investigating  committee, 
commission,  or  court. 

37 


The  Rise  and  Progress  of 

Company,  which  was  the  largest  of  all.  To 
profit  by  these  discriminations,  and  im- 
mediately by  the  advantages  of  concen- 
trated capital,  the  Standard  Oil  Company 
of  Ohio  increased  its  capital  stock  in  1872 
to  $2,500,000,  and  in  the  same  year  com- 
bined with  the  Standard  Oil  Company  of 
Pittsburg,  the  Cleveland  Standard  Refin- 
ery, the  Pittsburg  Refinery,  the  Atlantic 
Refining  Company  of  Philadelphia,  and 
Charles  Pratt  &  Co.  of  New  York— all  lead- 
ing independent  refiners— into  the  Stand- 
ard "alliance,"1  which  ten  years  later  was 
to  be  the  basis  of  the  Standard  Oil  Trust. 
"It  was  a  union,  not  of  corporations,  but 
of  their  stockholders,"  says  the  solicitor 
of  the  Standard  Oil  Company.  "The  sev- 
eral companies  continued  to  conduct  their 
business  as  before.  They  ceased  to  be 
competitive  with  one  another  in  the  sense  of 

1  The  official  name  of  the  "alliance"  was  the  Cen- 
tral Association  of  Refiners,  Mr.  John  D.  Rockefeller, 
president,  and  Mr.  Charles  Pratt,  secretary  and  treas- 
urer. 

38 


The  Standard  Oil  Company 

striving  to  undersell  one  another.  They 
continued  to  be  competitors  in  the  sense 
that  each  strove  to  show  at  the  end  of  each 
year  the  best  results  in  making  the  best 
product  at  low  cost.  From  time  to  time 
new  persons  and  additional  capital  were 
taken  into  this  association.  Whenever 
and  wherever  a  man  showed  himself  skil- 
ful and  useful  in  any  branch  of  the  busi- 
ness, he  was  sought  after.  As  business  in- 
creased, new  corporations  were  formed  in 
various  States,  in  the  same  interest,  some 
as  trading  companies,  some  as  manufact- 
uring companies."  l  The  motives  of  the 
combination,  as  stated  by  Mr.  Dodd,  were 
all  owing  to  conditions  prevalent  in  the 
period  from  1870  till  1874.  "Railroad 
rates  were  excessive  and  lacking  in  uni- 
formity. When  refiners  were  able  to  com- 
bine and  throw  a  large  volume  of  business 
to  any  particular  road,  they  would  get  fa- 
vorable rates.     The  rebate-and-drawback 

1  S.  C.  T.  Dodd,  Combinations. 
39 


The  Rise  and  Progress  of 

system  was  then  universal,  and  was  not 
confined  to  oil.  Undoubtedly  this  fact 
had  much  to  do  with  the  combination  of 
refiners  above  referred  to,  and  which  came 
to  be  known  as  the  Standard.  But  it  was 
by  no  means  the  only  reason.  The  men 
in  control  of  that  combination  foresaw 
that  a  business  which  had  thus  far  been 
disastrous  would  require  co-operation  on  a 
large  scale."  ' 

By  early  developments  of  its  refining 
capacity,  then,  the  Standard  Oil  Company 
had  succeeded  in  1870  in  controlling  four 
per  cent,  of  the  production  of  the  oil  re- 
gions. By  1 87 1  it  had  so  availed  itself  of 
the  competition  between  the  trunk  lines 
as  to  enjoy  rates  equal  to  those  of  the  re- 
finers at  Pittsburg.  In  the  depression  of 
1872  it  had  unsuccessfully  essayed,  with 
other  refiners,  to  act  as  "evener"  for  the 
railroads.  Frustrated  in  this  attempt,  it 
had  returned  to  its  policy  of  concentration 

1  S.  C.  T.  Dodd,  Combinations. 
40 


The  Standard  Oil  Company 

— purchasing  small  refineries,  uniting  with 
large  ones,  and  exacting  of  the  railroads 
discriminations  proportionate  to  its  size. 
By  1874  the  capital  of  the  Standard  Oil 
Company  of  Ohio  had  been  increased  to 
$3,500,000.  The  control  of  the  Standard 
"alliance"  had  been  extended  over  more 
than  half  the  refining  industry,  and  the 
combination  was  ready  to  enter  upon  the 
purchase  of  pipe-lines.  The  railroads  had 
not  conspired  to  cause  this  development,1 
neither  could  sharp  practice  in  competition 
account  for  it.  This  remarkable  increase 
since  1870  in  industrial  efficiency  must  be 
due  to  superior  ability  and  capital.  This 
still  more  striking  increase  in  advantages 
of  transportation  must  be  due  to  the  same 
causes,  coupled  with  peculiar  opportuni- 
ties of  geographical  location  and  railway 
conditions.  Five  years  after  this  suprem- 
acy was  accomplished,  William  H.  Van- 

1  It  has  frequently  been  stated,  though  never 
proved,  that  railroad  officials  were  financially  in- 
terested in  the  Standard  Oil  Company. 

41 


The  Rise  and  Progress  of 

derbilt,  in  reply  to  a  question  before  the 
Hepburn  Committee,  set  forth  what  seems 
on  the  whole  the  true  explanation : 

"Question.  Can  you  attribute,  or  do  you  at- 
tribute in  your  own  mind,  the  fact  of  there  being 
one  refiner  instead  of  fifty  now  to  any  other 
cause  except  the  larger  capital  of  the  Standard 
Oil  Company? 

''Answer.  There  are  a  great  many  causes:  it 
is  not  from  their  capital  alone  that  they  have 
built  up  this  business.  There  is  no  question 
about  it  but  that  these  men — and  if  you  come 
into  contact  with  them  I  guess  you  will  come 
to  the  same  conclusion  I  have  long  ago — I  think 
they  are  smarter  fellows  than  I  am,  a  good  deal. 
They  are  very  enterprising  and  smart  men.  I 
never  came  in  contact  with  any  class  of  men  as 
smart  and  as  able  as  they  are  in  their  business, 
and  I  think  that  a  great  deal  is  to  be  attributed 
to  that. 

"  Q.  Would  that  alone  monopolize  a  business 
of  that  sort? 

"A.  It  would  go  a  great  ways  towards  build- 
ing it  up.  They  never  could  have  got  in  the 
position  they  are  in  now  without  a  great  deal  of 
ability,  and  one  man  would  hardly  have  been 
able  to  do  it ;  it  is  a  combination  of  men. 


The  Standard  Oil  Company 

"Q.  Wasn't  it  a  combination  that  embraced 
the  smart  men  in  the  railways  as  well  as  the 
smart  men  in  the  Standard  Company? 

"A.  I  think  those  gentlemen,  from  their 
shrewdness,  have  been  able  to  take  advantage  of 
the  competition  that  existed  between  the  rail- 
roads for  their  business,  as  it  grew,  and  that  they 
have  availed  themselves  of  it  there  is  no  ques- 
tion of  doubt. 

"Q.  Don't  you  think  they  have  also  been  able 
to  make  their  affiliations  with  railroad  compa- 
nies and  railroad  officers? 

"A.  I  have  not  heard  it  charged  that  any 
railway  official  had  any  interest  in  any  of  their 
companies,  only  that  I  have  seen  in  the  papers, 
some  years  ago,  that  I  had  an  interest  in  it. 

"Q.  Your  interest  in  your  railway  is  so  large 
a  one  that  nobody  would  conceive,  as  a  matter 
of  personal  interest,  that  you  would  have  an  in- 
terest antagonistic  to  your  road? 

"A.  When  they  came  to  do  business  with  us 
in  any  magnitude  that  is  the  reason  I  disposed 
of  my  interest. 

"  Q.  And  that  is  the  only  way  you  can  account 
for  the  enormous  monopoly  that  has  grown  up? 

"A.  Yes;  they  are  very  shrewd  men.  I 
don't  believe  that  by  any  legislative  enactment 
or  anything  else,  through  any  of  the  States  or  all 

43 


The  Rise  and  Progress  op 

of  the  States,  you  can  keep  such  men  down. 
You  can't  do  it!  They  will  be  on  top  all  the 
time.  You  see  if  they  are  not."  [''Hepburn" 
Report,  New  York,  1879,  p.  2605.] 


1874-77 

By  its  economies  in  refining,  attained 
as  early  as  1870  —  and  in  freight  rates, 
the  reward  of  its  predominance  in  the  in- 
dustry in  1872  —  the  Standard  Oil  Com- 
pany in  1873  escaped  in  great  measure  the 
depression  which  harassed  its  competitors. 
This  depression,  if  continued,  promised  to 
be  disastrous  both  to  the  newly  formed 
"alliance"  and  to  its  dwindling  compet- 
itors. In  the  interest  of  both  parties, 
therefore,  relief  was  sought  in  the  restric- 
tion of  the  oil  production.  Throughout 
1873  there  was  a  disposition  on  the  part  of 
the  producers  outside  the  region  of  the 
great  wells  to  suspend  operations.  In 
1874,  because  of  the  small  inducement  to 
continue,  there  was  an  important  shut- 
44 


The  Standard  Oil  Company 

down  in  Clarion  County . '  But  these  meth- 
ods of  relief  were  unavailing.  Through- 
out 1874  the  weaker  refineries  were  forced 
to  sell  to  the  stronger,  who  reduced  the 
over-production  at  once  by  dismantling 
their  works,  so  that  in  1874  there  were 
"in  the  oil  regions  proper  but  few  refin- 
eries, and  those  universally  owned  by  the 
Standard  Oil  Company,  those  at  Pitts- 
burg being  owned  or  controlled  by  that 
combination,  or  by  the  Conduit  and  Em- 
pire lines.2  By  its  supremacy  in  the  oil 
regions,  then,  the  Standard  Oil  Company 
in  1874  had  added  to  its  economies  in 
efficiency  and  in  transportation  by  rail  the 
advantage  of  restricting  over-production, 
and  in  the  period  from  1874  till  1877  was 
ready  to  add  the  advantage  of  controlling 
the  pipe-lines. 

In   1869  the  first  extended  system  of 

1  P.  C.  Boyle,  Report  0}  the  Industrial  Commission, 
1900,  p.  427. 

'  B.  B.  Campbell,  Investigation  of  Trusts,  Con- 
gress, 1888,  p.  364. 

45 


The  Rise  and  Progress  of 

pipe -lines — the  Mutual  Pipe -Line — was 
laid  in  Clarion  County.  At  the  same  time 
William  H.  Abbott  and  Henry  Harley, 
with  a  capital  of  $2,000,000,  were  or- 
ganizing into  the  Pennsylvania  Transpor- 
tation Company  the  five  hundred  miles 
of  pipe  centring  at  the  Miller  farm.  Van- 
dergrift  &  Forman  were  establishing  in 
Butler  County  a  system  which  wras  later  to 
be  the  nucleus  of  the  United  Pipe  -  Line 
System,  and  the  American  Transfer  Com- 
pany and  the  Empire  Transportation  Com- 
pany were  forming.  Such  systems,  how- 
ever, were  rare  until  1874.  Most  of  the 
pipe -lines  were  scarcely  ten  miles  long, 
and  extended  from  Clarion  River  to  some 
common  point  of  shipment,  where  stated 
freight  rates  were  given.  Their  over-ca- 
pacity had  become  so  excessive,  their  com- 
petition so  ill-considered,  and  their  sol- 
vency so  much  a  matter  of  doubt  that  by 
1874  most  of  them  had  been  united  into 
the  system  of  Vandergrift  &  Forman,  the 
Pennsylvania  Transportation  Company, 
46 


The  Standard  Oil  Company 

the  Columbia  Conduit  Company,  or  the 
American  Transfer  Company.  Vander- 
grift  &  Forman  at  that  time  controlled 
twenty-five  or  thirty  per  cent,  of  the  pipe- 
line traffic  in  the  oil  regions,  and  the  five 
companies  together  controlled  by  far  the 
greater  part  of  the  traffic.1  Such  was  the 
situation  when  the  Standard  Oil  Company 
took  a  hand  in  the  business. 

In  1874  the  firm  of  Vandergrift  &  For- 
man was  reorganized.  Its  name  was 
changed  to  the  United  Pipe-Line  Com- 
pany; and  its  officers  were  Mr.  Vander- 
grift, president,  and  six  officials  of  the 
Standard  "alliance"  among  its  nine  direc- 
tors.2 In  the  same  year  the  five  great 
systems  of  pipe-lines  agreed  upon  a  uni- 
form schedule  of  charges,3  and  the  patrons 
of  these  systems  were  allowed  special  dis- 
criminations by  the  railroads.     This  new 

1  E.  C.  Patterson,  ''Hepburn"  Report,  New  York, 
1879,  p.  1693.  2Ibid. 

3  W.  T.  Scheide,  "Hepburn"  Report,  New  York, 
1879,  p.  2769. 

47 


The  Rise  and  Progress  of 

adjustment  contained  in  the  "Rutter  Cir- 
cular" of  September  9,  1874,  raised  the 
charges  for  transportation  of  oil  nearly 
to  the  rates  fixed  by  the  contract  of  the 
South  Improvement  Company,  and  al- 
lowed a  rebate  of  22  cents  on  all  oil  coming 
from  the  five  great  systems  of  pipe-lines 
which  maintained  the  uniform  schedule  of 
charges.1     By  this  new  tariff  the  organiza- 

1  The  "Rutter  Circular"  fixed  the  following  rates 
on  refined  and  crude  oil: 

"The  rates  on  refined  oil  from  all  refineries  at 
Cleveland,  Titusville,  and  elsewhere  in  and  adjacent 
to  the  oil  regions  shall  be  as  follows: 

Per  barrel. 

"To  Boston $2.10 

Philadelphia 1.85 

Baltimore 1.85 

New  York 2.00 

"Net  rate  on  Albany,  fifteen  per  cent,  less,  from 
which  shall  be  refunded  the  amount  paid  for  the 
transportation  of  crude  oil  by  rail  from  the  mouth  of 
the  pipes  to  the  said  refineries  upon  the  basis  of  four- 
teen barrels  of  crude  oil  to  the  refineries  for  every 
ten  barrels  of  refined  oil  forwarded  by  rail  from  them 
[the  refineries]  to  the  Eastern  points  named. 

"Settlements  of  this  drawback  to  be  made  on  the 
refined  oil  forwarded  during  each  month. 

48 


The  Standard  Oil  Company 

tion  of  the  remaining  lines  into  one  or  an- 
other system  was  considerably  hastened; 
and  in  this  process  of  bringing  order  into 
the  confused  net-work  of  pipe-lines  the 
Standard  "alliance,"  the  United  Pipe-Line 
Company,  owned  by  the  Standard  Oil 
Company,  and  the  great  systems  and  their 
patrons  are  greatly  benefited.  With  the 
railway  companies  the  purpose  was  merely 
to  put  an  end  to  the  unreliable  service 
of  the  small  pipe -lines,  and  to  secure 
for  themselves  a  larger  and  more  certain 
traffic.     With  the  pipe -lines,  however— 

"No  rebate  on  these  rates  will  be  paid  on  oil 
reaching  refineries  direct  by  pipes. 

"On  crude  oil  the  rates  from  all  initial  points  of 
rail  shipments  in  the  oil  region  shall  be  as  follows: 

"To  Boston,  $1.75  per  barrel. 

"To  New  York,  $1.50  per  barrel  (net  rate  on 
Albany  fifteen  per  cent.  less). 

"To  Philadelphia,  $1.50  per  barrel. 

"To  Baltimore,  $1.50  per  barrel. 

"From  which  shall  be  refunded  22  cents  per  bar- 
rel only  on  oil  coming  from  pipes  which  maintain 
the  agreed  rates  of  pipeage.  A  barrel  shall  in  all 
cases  be  computed  at  forty-five  gallons."  .  .  .—In- 
vestigation of  Trusts,  Congress,  1888,  p.  363. 

4  49 


The  Rise  and  Progress  of 

though  each  of  the  allied  pipe-lines  and 
every  refiner  who  was  served  by  them 
shared  impartially  in  the  rebate1 — the  ef- 
fect was  particularly  to  build  up  the  larger 
pipe-line  and  the  larger  refiner  at  the  ex- 
pense of  the  smaller.  For  this  reason  the 
economies  in  transportation  by  rail  and 
pipe-line  effected  in  1874  tended  greatly  to 
increase  the  predominance  of  the  United 
Pipe-Line  Company  and  the  Standard  "  al- 
liance." 

In  the  year  following  the  United  Pipe- 
Line  Company  acquired,  by  purchase,  the 
greater  part  of  the  pipe-lines  which  had 
not  participated  in  the  agreement.  Com- 
binations among  the  large  systems — the 
United  Pipe-Line  Company,  the  Columbia 
Conduit  Company,  and  the  Empire  Trans- 
portation Company — gradually  absorbed 
all  the  others.  Meanwhile  the  pipe-lines 
enjoying  the  discriminations  so  abused 
their  privilege  by  high  charges  that  in  1875 

1W.  T.  Scheide,  "Hepburn"  Report,  New  York, 
1879,  pp.  2770,  2794. 

SO 


The  Standard  Oil  Company 

competition  from  without  and  suspicion 
within  broke  up  the  agreement.  In  1874 
the  Baltimore  and  Ohio  Railroad  had  en- 
tered Chicago  and  was  making  advances 
to  the  Columbia  Conduit  Company.  The 
railway  situation  was  uneasy;  and  when, 
in  1875,  the  Erie  Railroad  accused  the 
Pennsylvania  Railroad  of  granting  secret 
discriminations  to  the  Empire  Transporta- 
tion Company,  the  agreement  among  the 
pipe-lines  was  immediately  broken.  The 
Columbia  Conduit  Company  attached  itself 
to  the  Baltimore  and  Ohio  Railroad;  the 
Empire  Transportation  attached  itself  to 
the  Pennsylvania  Railroad  j1  and  the  United 
Pipe-Line  Company,  through  its  owner, 
the  Standard  Oil  Company,  completed  an 
agreement  with  the  Erie  and  the  New  York 
Central  railroads,  according  to  which  it 
gave  to  each  road  fifty  per  cent,  of  its 


1  A  copy  of  the  contract  between  the  Empire 
Transportation  Company  and  the  Pennsylvania 
Railroad  is  contained  in  the  Investigation  of  Trusts, 
Congress,  1888,  p.  210. 

51 


The  Rise  and  Progress  of 

traffic,  guaranteed  to  the  Erie  Railroad 
twenty-seven  per  cent,  of  the  entire  oil 
traffic  in  the  oil  regions — which  was  the 
proportion  the  Erie  Railroad  had  received 
under  the  "Rutter  Circular" — and  re- 
ceived in  return  upon  all  shipments  a 
rebate  of  ten  per  cent.1  The  motives  of 
the  Erie  and  the  New  York  Central  rail- 
roads were  plain.  Entering  the  oil  regions 
by  connections  from  the  north,  these  roads 
depended  entirely  for  their  traffic  upon  the 
Standard  Oil  Company  at  Cleveland.  Ac- 
cordingly, for  the  guarantee  that  its  oil 
traffic  would  not  be  diminished  the  Erie 
Railroad  could  afford  to  pay  roundly ;  and 
for  the  maintenance  of  the  oil  industry  at 
Cleveland,  and  for  the  privilege  of  handling 
all  its  traffic,  the  New  York  Central  Rail- 
road was  ready  to  grant  a  liberal  discrim- 
ination. Therefore,  throughout  the  rest 
of  1875  all  the  pipe-lines  in  the  oil  regions 
arrayed  themselves  with  one  or  another  of 

1  The  details  of  this  contract  are  contained  in  the 
"Hepburn"  Report,  New  York,  1879,  pp.  175,  182. 

52 


The  Standard  Oil  Company 

the  three  rival  pipe-lines  and  their  allied 
railroads  ;x  and  the  armed  peace  thus  main- 
tained continued  throughout  1876. 

In  1877,  with  the  aid  of  the  Pennsyl- 
vania Railroad,  the  Empire  Transportation 
Company  secured  control  of  a  refinery  at 
Communipaw,  and  began  constructing  oth- 
ers at  Philadelphia.     The  roads  in  alliance 
with  the  Standard  Oil  Company  were  the 
first  to  discover  the  encroachment,  and 
resented  it  before  the  Standard  Oil  Com- 
pany had  time  to  act.     "  Unless  checked," 
said  Mr.  Blanchard,  of  the  Erie  Railroad, 
"the  result  would  be  a  diversion  largely  of 
the  transportation  of  oil  from  our  roads. 
The  New  York  Central  road  and  our  own 
determined  that  we  ought  not  to  stand  by 
and  permit  these  improvements  and  ar- 
rangements to  be  made,  which,  when  com- 
pleted, would  be  beyond  our  control.     We 
determined,  therefore,  to  make  the  issue 
with    the    Pennsylvania    Railroad    Com- 

1  W.  T.  Scheide,  "Hepburn"  Report,  New  York, 
1879,  p.  2795;  J.  C.  Welch,  Ibid.,  p.  3673- 

53 


The  Rise  and  Progress  of 

pany."1  At  the  suggestion  of  the  rail- 
roads, accordingly,  the  Standard  Oil  Com- 
pany, by  ceasing  on  March  18,  1877, 
to  send  freight  over  the  Pennsylvania 
Railroad,  precipitated  a  war  between 
the  great  pipe  -  lines  and  their  allied 
roads. 

The  suddenness  and  fury  of  the  war  for 
the  oil  traffic  which  followed  is  explained 
only  by  the  strained  relations  of  the  trunk 
lines  at  that  time.  Since  1874,  when 
the  Baltimore  and  Ohio  Railroad  entered 
Chicago,  there  had  been  a  ruinous  war  of 
rates.  Freight  charges  during  this  period 
from  Chicago  to  the  seaboard  had  fallen 
from  $1  to  10  cents.  New  York  Central 
and  the  Erie  railroads  had  lost  millions, 
and  the  Baltimore  and  Ohio  and  the  Penn- 
sylvania railroads  had  ceased  to  pay  divi- 
dends.2    The  struggle  in  the  oil  region  was, 

1  G.  R.  Blanchard,  "Hepburn"  Report,  New 
York,  1879,  p.  1463. 

2  Report  0}  the  "Hepburn"  Committee,  New  York, 
1879.  P-  33- 

54 


The  Standard  Oil  Company 

therefore,  merely  part  of  a  contest  extend- 
ing half  across  the  continent.  Beginning 
fully  a  month  before  the  larger  contest 
approached  settlement,  it  continued  bitter- 
ly for  six  months  until  the  very  last  agree- 
ments had  been  signed.  In  this  struggle 
the  Columbia  Conduit  Company  connected 
with  a  branch  of  the  Reading  Railroad, 
and  controlled  the  traffic  in  the  newly 
discovered  Bradford  district.  The  Empire 
Transportation  Company,  meanwhile,  aid- 
ed by  the  Pennsylvania  Railroad,  sought 
by  a  tremendous  effort  to  crush  the  United 
Pipe -Line  Company  and  the  Standard 
Oil  Company.  The  Pennsylvania  Railroad 
carried  oil  at  8  cents  a  barrel  less  than 
cost,1  and  ordered  the  refineries  of  the  Em- 
pire Transportation  Company  to  sell  oil  in 
the  territory  of  the  Standard  alliance"  at 
any  price.  But  the  Standard  Oil  Com- 
pany, with  its  high  degree  of  mechanical 
efficiency,  its  well-organized  united  pipe- 

1  Digest  of  the  Report  of  the  Industrial  Commission, 
1900,  p.  150. 

55 


The  Rise  and  Progress  of 

line  system,  and  its  firm  alliance  with  the 
Erie  and  the  New  York  Central  railroads, 
proved  superior.  On  October  17,  1877, 
the  Pennsylvania  Railroad  was  forced  to 
abandon  the  struggle  and  to  sign  a  con- 
tract which  gave  the  Standard  Oil  Com- 
pany practically  the  monopoly  of  the  pro- 
duction and  transportation  of  oil  in  the 
United  States.  According  to  this  contract 
the  Standard  Oil  Company  was  appointed 
"evener,"  to  apportion  oil  traffic  in  the 
following  ratio :  sixty-three  per  cent,  of  the 
oil  traffic  was  to  go  to  New  York  City  and 
thirty-seven  per  cent,  to  Philadelphia  and 
Baltimore ;  of  the  traffic  going  to  New  York 
City,  the  New  York  Central,  the  Erie,  and 
the  Pennsylvania  railroads  were  each  to 
carry  one-third ;  of  the  traffic  going  to  Phil- 
adelphia and  Baltimore,  the  Pennsylvania 
Railroad  was  to  carry  seventy  per  cent,  and 
the  Baltimore  and  Ohio  thirty  per  cent. 
By  the  terms  of  the  contract  the  Pennsyl- 
vania Railroad  was  guaranteed  an  annual 
traffic  of  not  less  than  two  million  bar- 
56 


The  Standard  Oil  Company 

rels  ;'  and  the  Empire  Transportation  Com- 
pany was  purchased  for  $3,000,000  by  the 

1  In  a  letter  of  October  17,  1877,  Mr.  William 
Rockefeller  set  forth  this  contract  in  five  provisions, 
the  last  providing  as  follows  for  the  remuneration  of 
the  Standard  Oil  Company: 

"We  ask,  in  consideration  of  the  above-named 
guarantee  of  the  business  upon  which  it  is  under- 
stood we  shall  pay  such  rates  as  may  be  fixed  from 
time  to  time  by  the  four  trunk  lines  (which  rate,  it  is 
understood,  shall  be  so  fixed  by  the  trunk  lines  as  to 
place  us  on  a  parity  as  to  cost  of  production  with 
shippers  by  competing  lines) ,  that  you  shall  furnish 
us  promptly  all  the  transportation  we  may  reason- 
ably require,  and  that  you  shall  allow  to  and  pay  us 
weekly  such  commission  on  our  own  shipments 
and  the  shipments  which  we  may  control  as  may  be 
agreed  to  by  your  company  and  the  other  trunk 
lines  from  time  to  time.  This  commission,  it  is 
understood,  has  for  the  present  been  fixed  at  ten  per 
cent,  upon  the  rate,  and  shall  not  be  fixed  at  a  less 
percentage,  except  by  a  mutual  agreement  of  your 
company  and  ours;  provided  that  no  other  shipper 
of  oil  by  your  line  shall  pay  less  than  the  rate  fixed 
for  us  before  such  commission  is  deducted,  and  no 
commission  shall  be  allowed  any  other  shipper  unless 
he  shall  guarantee  and  furnish  such  amount  of  oil  for 
shipment  as  will,  after  deduction  of  commission  al- 
lowed him,  realize  to  you  the  same  amount  of  profit 
you  realize  from  our  trade — that  is,  you  will  not 
allow  any  other  shipper  of  oil  any  part  of  such  com- 
mission, unless  after  such  commission  you  realize 

57 


The  Rise  and  Progress  of 

Standard  Oil   Company  and  the  United 
Pipe-Line  Company.1     The  Standard  Oil 

from  the  total  of  his  business  the  same  total  of  profit 
you  realize  from  the  total  of  our  business,  except  so 
far  as  your  company  may  be  compelled  to  fill  certain 
contracts  for  transportation  made  by  the  Empire 
Line  with  refineries  and  producers,  which  contracts 
terminate  on  or  before  May  i,  1878 — a  statement 
of  which  shall  accompany  your  reply  to  the  letter; 
such  contracts  to  be  fulfilled.  We  agree  that  all  the 
stipulation  herein  contained  shall  be  carried  out  by 
us  for  the  period  of  five  years  from  the  date  hereof." 
.  .  . — Investigation  of  Trusts,  Congress,  1888,  p.  208. 
1  The  motives  of  this  act  have  been  thus  stated: 
"  It  was  the  desire  on  the  part  of  the  Pennsylvania 
Railroad  to  have  a  portion  of  our  other  business 
that  induced  them  to  bring  about  this  negotiation 
with  the  Empire  Transportation  Company,  and  we 
yielded  to  their  most  urgent  persuasions.  We  did 
not  want  the  property,  but  they  insisted  upon  it 
that  we  should  buy  it.  We  did  finally  yield  to  their 
persuasions,  and  purchased  that  portion  of  the  Em- 
pire Transportation  Company's  property,  meaning 
the  local  pipe-lines  in  the  oil  regions.  We  had  stated 
in  early  discussions  with  representatives  of  the  Penn- 
sylvania Railroad  that  we  were  willing  to  buy  the 
refineries  owned  by  the  Empire  Transportation 
Company;  but,  as  we  were  not  interested  in  trans- 
portation at  all,  we  wanted  them  to  pay  for  the  pipe- 
lines and  own  them  themselves.  But  we  yielded 
that  point  finally." — H.  M.  Flagler,  of  the  Standard 
Oil  Company,  Investigation  of  Trusts,  1888,  p.  773. 

58 


The  Standard  Oil  Company 

Company,  meanwhile,  for  its  services  as 
"evener"  was  remunerated  in  the  follow- 
ing fashion:  After  May  i,  1878,  when  the 
contracts  between  the  Pennsylvania  Rail- 
road and  its  shippers  expired,  the  Standard 
Oil  Company  received  a  rebate  of  ten  per 
cent,  on  all  its  freight.  In  addition  to  this 
it  was  allowed,  with  other  shippers,  a  re- 
bate of  68  £  cents  in  order  that  it  might 
be  on  an  equality  with  those  refineries 
who  shipped  by  the  Erie  Canal;  and  the 
American  Transfer  Company,  which  had 
now  been  united  with  the  United  Pipe- 
Line  Company,  was  allowed  22^  cents  as 
its  share  of  the  through  rate. 

The  Pennsylvania  Railroad  offered  to 
carry  oil  for  all  shippers  on  these  terms, 
except  that  for  the  ten  per  cent,  rebate  it 
asked  such  considerations  as  the  Standard 
alone  could  furnish ;  and,  indeed,  for  those 
refiners  who  made  all  their  shipments  over 
its  line,  it  continued  to  give  rates  as  low  as 
those  of  the  Standard  Oil  Company.  On 
December  8,  1878,  however,  when  the  Erie 

59 


The  Rise  and  Progress  of 

Canal  was  closed,  the  railroad  ceased  mak- 
ing such  favorable  rates  for  independent 
refiners;  and  on  March  31,  1879,  all  pay- 
ments of  rebates  ceased.1 

In  view  of  the  bitterness  of  the  war 

1  A.  J.  Cassatt,  testimony  in  Commonwealth  of 
Pennsylvania  v.  Pennsylvania  Railroad.  Quoted  in 
"Hepburn"  Report,  New  York,  1879,  pp.  483-519. 
Summarized  by  Archbold,  Report  of  tlte  Industrial 
Commission,  1900,  p.  1515. 

Expressed  statistically,  the  rates  and  rebates  of 
May  i,  1878,  are: 

Tariff  rate  on  crude  oil $1.40 

Allowance  to  American  Transfer 

Company $0,225 

Allowance  to  Standard  Oil  Com- 
pany, ten  per  cent.  .     .     .        0.14 
Allowance  to  Standard  Oil  Com- 
pany      0.15  0.515 

Net  rate  to  Standard  Oil  Com- 
pany       $0,885 

Tariff  rate  on  refined  oil 1.90 

Rebate  to  all  shippers   ....  $0,645 

Rebate  to  Standard  Oil  Com- 
pany  o-455        IIQ 

Net  rate  to  Standard  Oil  Com- 
pany  $0.80 

Net  rate  to  other  shippers 1255 

Mr.  Cassatt  testified  that  large  independent  re- 
60 


The  Standard  Oil  Company 

which  it  settled,  this  agreement  was  very 
favorable  to  the  defeated  party.  The 
Pennsylvania  Railroad  had  gone  out  of  its 
way  to  strike  at  the  power  of  the  Standard 
"alliance,"  and  after  expensive  fighting 
had  been  completely  beaten  and  forced  to 
sue  for  such  terms  as  might  mercifully  be 
granted  it.  The  Standard  Oil  Company, 
however,  required  of  it  only  such  favors 
as  it  already  received  of  the  New  York 
Central  and  the  Erie  railroads,  and,  in  re- 
turn, guaranteed  its  oil  traffic,  purchased 
its  interest  in  the  Empire  Transportation 
Company,  and  advanced  the  money  to 
buy  oil-cars.  It  was,  indeed,  shrewd  mag- 
nanimity ;  for,  in  advancing  the  money  to 
complete  the  sale,  the  Standard  Oil  Com- 
pany became  the  mortgager  of  the  oil-cars 
of  the  railroad,1  and  by  aid  of  the  discrim- 
inations provided  in  the  contract  it  was 

finers  usually  receive  secret  rebates,  which  some- 
times equal  those  of  the  Standard  Company. 

1  H.  M.  Flagler,  Investigation  of  Trusts,  Congress, 
1888,  pp.  770-774. 

6l 


The  Rise  and  Progress  of 

able,  in  a  few  months,  to  drive  the  Colum- 
bia Conduit  Company  into  selling.1  So 
that  in  1878  and  1879  the  Standard  Oil 
Company  owned  or  controlled  by  contract 
every  transporting  agent  in  the  oil  regions. 

The  achievement  of  this  supremacy 
marks  the  close  of  the  first  phase  of  the 
Standard  Oil  Company.  It  owned  the  ter- 
minal facilities  of  the  New  York  Central 
for  handling  oil  at  New  York.  It  leased 
the  terminal  facilities  of  the  Erie  Railroad 
at  New  York.  It  owned  or  leased  almost 
all  the  oil-cars  on  the  Erie,  the  New  York 
Central,  and  the  Pennsylvania  railroads.2 
Through  the  United  Pipe-Line  Company 
and  the  American  Transfer  Company,  it 
purchased,  one  after  another,  twenty  -  six 
pipe -lines  that  threatened  competition.3 

1  John  C.  Welch,  ''Hepburn"  Report,  New  York, 
1879,  p.  3671. 

'  Report  of  the  "Hepburn"  Committee,  New  York, 
1879,  p.  4°- 

3  Report  of  the  Industrial  Commission .  1900,  p. 
101. 

62 


The  Standard  Oil  Company 

And  when,  in  1879,  the  Tidewater  Pipe- 
Line  Company  was  built  to  the  seaboard, 
in  order  to  evade  the  discriminations  of 
the  railways,  the  Standard  Oil  Company 
was  able,  after  a  struggle  of  four  years,  to 
defeat  that  also.  The  dominance  of  the 
Standard  Oil  Company  in  the  refining  in- 
dustry was  even  more  striking.  In  1879 
it  controlled  ninety-five  per  cent,  of  the 
refineries  in  the  oil  region,  and  at  one 
time  during  this  period  there  were  scarce- 
ly a  dozen  independent  refiners  in  busi- 
ness.1 

An  explicated  narrative — such  as  this 
has  pretended  to  be — should  bear  its  own 
judgment  upon  the  agents  who  accom- 
plished the  oil  monopoly.  That  judgment 
— if  the  narrative  has  succeeded  in  logi- 
cal clearness — runs  somewhat  as  follows: 
Given  the  railway  and  economic  condi- 
tions, the  progress  of  the  Standard  Oil 
Company  was  quite  inevitable.     Since  it 

1  Report  of  the  Industrial  Commission,  1900,  p. 
95- 

63 


The  Rise  and  Progress  of 

showed  at  an  early  time  bright  promise  of 
industrial  efficiency,  it  readily  acquired, 
after  the  fashion  of  the  period,  proportion- 
ate discrimination  in  freight  rates.  By  get- 
ting control  through  discriminations  of 
the  means  of  transportation,  it  inevitably 
achieved  monopoly.  In  support  of  this 
judgment  it  may  be  urged — as  Mr.  Paul  de 
Rousiers  boldly  urges  —  that  discrimina- 
tions, "  though  important  in  the  beginning, 
went  into  the  background  with  the  ab- 
sorption of  the  pipe-lines,  and,  though  very 
helpful  in  the  creation  of  the  trust,  were 
not  indispensable  to  its  continuance." 
Conditions  alone,  he  continues,  were  such 
as  to  make  monopoly  in  some  sort  inevi- 
table. "  Historically  it  is  a  fact;  and  one 
does  not  see  how  otherwise  it  could  have 
obtained,  in  so  quick  and  complete  a  fash- 
ion, the  result  towards  which  it  tended." 
If  the  Standard  Oil  Company  were  not  the 
strongest  refiner,  its  most  powerful  rival 
would  certainly  have  seized  the  same  con- 
trol over  transportation  that  the  Standard 
64 


The  Standard  Oil  Company 

Oil  Company  in  fact  secured.  In  the  last 
analysis,  monopoly  by  the  Standard  Oil 
Company  was,  under  existing  conditions, 
inevitable,  simply  because  it  was  most  ef- 
ficiently organized. 


The  Rise  and  Progress  of 


II 

1877-83 

The  organization  of  the  Standard  "alli- 
ance," which  in  1879  controlled  the  trans- 
portation of  oil  by  rail  and  by  pipe-line 
and  produced  ninety-five  per  cent,  of  the 
refined  oil  of  the  country,  was  an  informal 
substitute  for  the  modern  trust.  • '  The 
bond  of  unity  was  common  ownership  of 
stock  in  the  various  companies  of  the  "al- 
liance" and  personal  agreement  between 
the  officers  of  the  respective  companies 
and  the  officers  of  the  Standard  Oil  Com- 
pany.1 ""The  Standard  "alliance"  included 
the  Standard  Oil  Company  of  Cleveland, 
the  Standard  Company  of  Pittsburg,  the 
Acme  Oil  Company  of  New  York  (located 

1  "Hepburn"  Report,  1879,  p.  2614. 

66 


The  Standard  Oil  Company 

at  Titusville),  the  Imperial  Oil  Company 
at  Oil  City,  the  Atlantic  Refining  Company 
of  Philadelphia,  the  Camden  Company  of 
Maryland,  Charles  Pratt  &  Co,  of  New 
York,  J.  A.  Bostwick  &  Co.,  Sone  &  Flem- 
ing Manufacturing  Company,  Warden, 
Frew  &  Co.  of  Philadelphia,  and  the  Balti- 
more United  Oil  Company  of  Baltimore.1 
The  petroleum  producers,  on  the  other  hand, 
had  meantime  been  organizing  to  stay  the 
further  progress  of  the  Standard  "alliance" 
in  a  league  which  suggested  in  its  forms  a 
revival  of  the  fifteenth-century  guild. 

In  1877  local  lodges  of  the  fraternal  Gen- 
eral Qxuncil  of  the^Petroleum  Producers' 
UnioriTaad  been  formed,  under  the  strictest 
obligations  of  secrecy,  throughout  the  oil 
region.  Eventually,  from  two  thousand 
five  hundred  to  three  thousand  producers 
were  enrolled  as  members  in  the  local 
lodges,  which  sent  delegates  to  the  Gener- 
al Council.     The  object  of  the  union  was 

l"  Hepburn"  Report,  1879,  pp.  42,  2615. 
67 


The  Rise  and  Progress  of 

"the  collection  and  dissemination  of  val- 
uable information  respecting  the  produc- 
tion, storing  or  tanking,  shipping,  refining, 
and  consumption  of  petroleum;  the  se- 
curing the  most  advantageous  facilities  for 
transportation;  the  protection  of  the  pro- 
ducing interests  against  unfriendly  legisla- 
tion and  unjust  exactions;  the  correction 
of  all  abuses  and  pernicious  practices  detri- 
mental to  the  producing  business  and  the 
improvement  of  the  trade  generally."  At 
the  first  meeting  of  the  General  Council, 
in  the  Universalist  church  in  Titusville, 
November  21,  1877,  Mr.  Benjamin  B. 
Campbell,  a  well-known  opponent  of  the 
Standard,  was  elected  president ;  and  stand- 
ing committees  were  chosen  on  finance,  re- 
ports and  statistics,  transportation,  pipe- 
lines, patents,  refining,  legislation,  national 
legislation,  and  legal  remedies.  Once  a 
month  the  General  Council  met  regularly 
at  Titusville.1 

1  Investigation   0}    Trusts,   House    Reports,    First 

68 


The  Standard  Oil  Company 

The  first  aim  of  the  society  was  to  stop 
the  drilling  of  new  wells  and  to  induce  pro- 
ducers to  provide  storage  for  their  oil,  in 
order  that  they  might  not  be  subject  to 
the  necessity  of  forced  sales.  Throughout 
northwestern  Pennsylvania,  in  the  coun- 
ties of  Alleghany,  Armstrong,  Butler,  Clar- 
ion, Venango,  Crawford,  and  Warren,  this 
object  was  effected;  and,  "had  it  not  been 
for  the  unusual  development  of  the  oil- 
field in  McKean  County,"  as  the  report 
of  the  General  Council  naively  explains, 
these  efforts  might  have  succeeded.  But 
"the  producers  continued  to  crowd  each 
other  with  new  wells  and  to  rely  solely 
upon  the  United  Pipe-Line  to  furnish  stor- 
age and  local  transportation.  The  re- 
sult was  that  the  eager  driller  of  wells 
found  his  product  at  the  mercy  of  the  pur- 
chaser, and  was  speedily  subjected  to  low 
prices  and  loss  of  oil."  *     Of  more  impor- 

Session,  Fiftieth  Congress,  1887-88,  ix.,  p.  692;  a 
copy  of  the  constitution  is  given,  p.  47. 

1  Investigation  of  Trusts,  Congress,  1888,  p.  692. 

69 


The  Rise  and  Progress  of 

tance  were  the  efforts  of  the  society  to  se- 
cure transportation  facilities.  At  a  time 
when  the  transportation  agents,  both  lo- 
cal and  to  the  seaboard,  were  in  alliance 
with  the  Standard  interests,  the  Equitable 
Petroleum  Company,  formed  by  the  pro- 
ducers of  McKean  County  to  provide  an 
outlet  by  pipe -line  to  the  McKean  and 
Buffalo  Railroad,  thence  to  Buffalo,  and 
by  way  of  the  Erie  Canal  to  New  York, 
was  enthusiastically  encouraged  by  the 
General  Council.  The  committee  on  leg- 
islation meanwhile  had  introduced  into 
Congress  and  into  the  Pennsylvania  Leg- 
islature bills  regulating  the  companies 
engaged  in  the  transportation  of  petro- 
leum. These  proposals,  however,  were 
not  well  received ;  and  in  its  report  in 
1878  the  disgruntled  committee,  describ- 
ing its  labors,  said:  "It  has  been  sim- 
ply a  history  of  failure  and  disgrace. 
If  it  has  taught  us  anything,  it  is 
that  our  present  law -makers  are,  as  a 
body,  ignorant,  corrupt,  and  unprinci- 
70 


The  Standard  Oil  Company 

pled."  *  So  far,  in  spite  of  all  its  activity, 
the  General  Council  had  brought  no  prac- 
tical relief  to  the  producers;  so  that  when, 
in  May,  1878,  the  committee  on  legal 
remedies  advised  resort  to  whatever  ex- 
isting laws  there  might  be,  the  council  at 
once  authorized  the  committee  to  take  the 
necessary  steps. 

The    committee    immediately    laid    its 
grievances  before  the  attorney  -  general ; 
and  on  behalf  of  the  committee  the  at- 
torney-general brought  action  against  the 
United  Pipe-Line  Company  for  the  forfeit- 
ure of  its  charter,  and  prayed  for  an  in- 
junction   restraining    the     Pennsylvania 
Railroad,  the  Atlantic  and  Great  Western 
Railroad,  the  Lake  Shore  and  Michigan 
Southern  Railroad,  and  the  Dunkirk,  Alle- 
ghany and  Pittsburg  Railroad  from  "com- 
bining to  create  and  perpetuate  a  monop- 
oly of  the  oil  business,  from  granting  un- 
reasonable rebates  to  the  Standard   Oil 

1  Investigation  of  Trusts,  Congress,  1888,  p.  693. 
71 


The  Rise  and  Progress  of 

Company  and  its  allies,  from  refusing  cars 
to  shippers,  from  breaking  connections 
with  other  roads,  from  buying  and  selling 
petroleum  in  connection  with  the  Standard 
combination,  from  refusing  transportation, 
from  making  discriminations  in  form  of 
one  shipper  against  another,  and  from 
granting  greater  facilities  to  one  than  to 
another." 

Amid  great  popular  excitement  at  Brad- 
ford these  proceedings  were  decided  upon. 
Mass-meetings  were  held,  processions  pa- 
raded the  streets,  and  riot  seemed  immi- 
nent. The  recent  months  had  been  marked 
by  heavy  depression  in  the  oil  trade  and 
bitter  antagonism  of  producers  and  oil 
buyers.  Riotous  meetings  were  held  be- 
fore the  United  Pipe  -  Line  Company's 
offices;  men  were  hanged  in  effigy;  and 
processions  of  masked  men  marched  the 
streets,  and  groaned  and  hooted  before  the 
offices  of  the  buyers.  Numerous  secret 
societies  were  formed  among  the  pro- 
ducers; and  every  morning  the  streets  and 
72 


The  Standard  Oil  Company 

sidewalks  were  found  placarded  with  cab- 
alistic signs  and  proclamations.  About 
this  time  occurred  the  investigation  of  rail- 
roads in  New  York  by  the  Hepburn  Com- 
mittee of  the  legislature;  and  a  similar 
investigation  of  the  petroleum  trade  in 
Pennsylvania  was  being  urged.  In  the 
popular  frenzy  of  the  moment  all  the  offi- 
cers of  the  Standard  Oil  Company  were  in- 
dicted for  conspiracy  in  restraint  of  trade, 
and  requisition  made  to  the  Governor  to 
secure  their  extradition  from  New  York.1 

All  these  troubles  arose  from  the  de- 
pression incident  to  the  excessive  produc- 
tion of  the  McKean  County  wells,  which 
was  greater  than  the  capacity  of  the  stor- 
age-tanks. The  storage-tanks  were  built 
by  the  pipe-line  companies  under  contract 
with  the  producers  to  "  carry  in  its  system 
of  pipes  and  tanks  an  amount  of  petroleum 
not  exceeding  the  capacity  of  the  tanks." 

The  Pipe-Line  Company,  after  due  no- 

1  Investigation  of  Trusts,  Congress,  1888,  p.  706. 

73 


The  Rise  and  Progress  of 

tice  that  the  surplus  production  exceeded 
its  ability  to  construct  tanks  for  storage, 
finally  announced  that  while  it  would  con- 
tinue to  take  oil  for  immediate  shipment 
it  could  take  no  more  for  storage  except  as 
storage  capacity  was  created  by  shipments. 
The  producers,  in  order  to  save  oil  from 
running  to  waste  at  their  wells,  were  forced 
to  sell  it  at  reduced  price  to  refiners  who 
would  immediately  ship  the  same  or  an 
equivalent  amount  from  the  pipe -line 
tanks.  This  enabled  the  Standard  to  pur- 
chase "immediate  shipment"  at  a  lower 
rate  than  "certificate"  oil,  because  the 
latter  had  the  privilege  of  remaining  in 
storage.  Immediate  shipment  seems  to 
have  been  an  absolute  necessity  so  far  as 
the  Pipe  -  Line  was  concerned,  and  the 
lower  price  was  the  inevitable  result  of 
over-production,  which  soon  affected  "cer- 
tificate" as  well  as  "immediate  shipment" 
oil.  For  a  time  the  claim  of  over-produc- 
tion and  want  of  storage  capacity  was  de- 
nied by  the  producers,  but  this  eventually 
74 


The  Standard  Oil  Company 

became  too  apparent  for  dispute.  By  ex- 
traordinary effort,  however,  and  the  ex- 
penditure of  millions  of  capital,  the  Pipe- 
Line  Company  finally  erected  sufficient 
tankage  to  hold  the  accumulated  surplus 
of  oil ;  and  the  producers  in  due  time  were 
satisfied. 

In  the  suit  which  was  brought  against 
the  United  Pipe-Line  Company,  asking  for 
the  forfeiture  of  its  charter  on  the  ground 
that  it  had  made  discriminations  in  pipe- 
age,  it  appeared  that,  so  far  as  any  discrim- 
inations existed,  they  were  due  to  contracts 
for  special  rates  inherited  from  the  lines 
which  had  recently  been  absorbed  in  the 
company — among  them,  curiously  enough, 
one  between  a  member  of  the  prosecuting 
committee  of  the  Producers'  Union  and 
the  Mutual  Pipe-Line  Company.1  These 
discriminations  were  recognized  by  the 
Standard  to  be  contrary  to  public  poli- 
cy, and  were  at  once  discontinued.     The 

1  Report  of  the  Industrial  Commission.  1900,  i.,  pp. 
476-479. 

75 


The  Rise  and  Progress  of 

grievance  for  which  the  producers  had 
brought  prosecution  against  the  railroads 
was  a  shipping  agreement  between  the 
Standard  and  the  railroads.  This  agree- 
ment provided  that,  since  the  Standard 
shipped  ninety  per  cent,  or  more  of  the 
crude  petroleum  of  the  region,  it  might 
make  requisition  at  any  time  for  that  per 
cent,  of  the  oil-cars  of  the  railroad.  The 
producers  maintained,  however,  that,  since 
the  Standard  owned  already  a  large  num- 
ber of  private  cars  running  on  the  railroads, 
it  ought  not  to  be  allowed  its  pro  rata  allot- 
ment of  the  railroad's  cars  upon  demand; 
particularly  when,  as  happened  at  this 
time,  the  ten  per  cent,  of  railroad  oil-cars 
was  insufficient  to  transport  the  oil  which 
independent  producers  wished  to  ship. 
The  demands  of  the  producers  were  un- 
usual, and  the  refusal  of  the  transporta- 
tion companies  to  grant  them  seems  quite 
within  their  rights.  When  it  is  considered 
that,  meantime,  propositions  were  being 
made  to  the  producers  by  the  Standard, 
76 


The  Standard  Oil  Company 

according  to  which  the  price  of  crude  oil 
should  be  based  upon  the  relative  price  of 
refined,  it  would  seem  that  a  fair  attempt, 
at  least,  had  been  made  to  satisfy  the 
producing  interest.1  Indeed,  the  issue  of 
those  suits  proved  them  to  be  merely  the 
ebullition  of  excited  popular  feeling.  The 
indictment  of  conspiracy  against  the  offi- 
cers of  the  Standard  was  continued,  and 
eventually  dropped.2  The  suits  against 
the  Pennsylvania  Railroad  and  against  the 
United  Pipe-Line  Company  were  protract- 
ed,3 and  finally  dismissed  by  an  agreement 
among  all  parties;  and  with  the  passing 
of  this  period  of  litigation  the  importance 
of  the  Petroleum  Producers'  Union  practi- 
cally ended. 

In  1881  the  Standard  Oil  Company  of 
Ohio,  the  nucleus  of  the  Standard  "alli- 
ance," was  a  corporation  capitalized  at 
$3,500,000.  Since  the  formation  of  the 
"alliance"  it  had  maintained  connections 

1  Investigation  of  Trusts,  Congress,  1888,  p.  694. 

2  Ibid.,  p.  710.  3  Ibid.,  p.  711. 

77 


The  Rise  and  Progress  of 

with  its  allies  by  a  union,  not  of  corpora- 
tions, but  of  stockholders.  "  Then,"  as  the 
solicitor  of  the  Standard  Oil  Company 
explains,  "for  convenience  of  control  and 
management  the  Standard  Oil  Trust  was 
formed.  It  was  simply  an  agreement, 
placing  all  the  stock  of  these  various  com- 
panies in  the  hands  of  trustees,  declaring 
the  terms  on  which  they  were  held,  and 
providing  for  the  issuance  of  a  certificate 
showing  the  amount  of  each  owner's  inter- 
est in  the  stock  so  held  in  trust.  This 
agreement  did  not  in  any  essential  manner 
change  the  character  of  the  association 
previously  existing.  Its  essential  charac- 
ter was  simply  a  common  ownership  of 
stock  in  various  corporations.  If  they 
had  so  preferred,  the  owners  of  these  sev- 
eral associated  companies  could  have  or- 
ganized— in  the  State  of  New  York,  for 
example — with  any  capitalization  desired. 
Each  could  then  have  lawfully  combined 
with  all  the  other  companies,  forming  one 
corporation  to  transact  business  wherever 
78 


The  Standard  Oil  Company 

desired.  But  it  seemed  preferable,  instead 
of  organizing  one  corporation  in  New  York, 
to  organize  a  corporation  in  each  State 
where  business  was  being  carried  on,  so 
that  the  business  transacted  in  each  State 
might  be  conducted  by  a  home  corpora- 
tion, subject  in  all  respects  to  the  law  of 
the  State  where  located.  Accordingly,  we 
organized  a  Standard  Oil  Company  in  New 
York,  in  New  Jersey,  in  Kentucky,  in 
Iowa,  in  Minnesota;  and  similar  corpora- 
tions already  existed  in  Ohio  and  Pennsyl- 
vania." * 

/  As  the  first  "trust"  form  of  combina- 
tion, the  agreement  under  which  this  union 
was  brought  about  deserves  attention. 
There  were  three  classes  of  parties  to  the 
contract:  first,  all  the  stockholders  and 
members  of  the  Standard  "alliance,"  to- 
gether with  members  of  some  other  com- 
panies; second,  all  the  more  important 
officers  and  stockholders  of  these  several 

1  S.  C.  T.  Dodd,  quoted  in  Trusts  or  Competition, 
edited  by  A.  B.  Nettleton,  Chicago,  1900,  p.    197. 

79 


The  Rise  and  Progress  of 

companies;  and,  third,  a  portion  of  the 
stockholders  and  members  of  some  ad- 
ditional corporations  and  limited  partner- 
ships. Provision  was  made  for  the  ad- 
mission of  new  companies  and  individuals, 
and  for  the  formation,  whenever  advisable, 
of  a  Standard  Oil  Company  in  any  State 
or  Territory  in  the  Union.  The  parties  of 
the  several  classes  were  to  transfer  all  their 
property  to  the  Standard  Oil  Companies 
in  their  several  States,  in  consideration  of 
which  they  should  receive  stock  equal  at 
par  value  to  the  appraised  value  of  the 
property  so  transferred.1  This  stock  — 
and  here  is  the  significant  feature  of  the 
new  organization — was  to  be  delivered  to 
trustees,  and  held  by  them  and  their  suc- 

1  The  thirty-nine  companies  who  signed  the  agree- 
ment were  subsequently  merged  into  twenty.  The 
list  of  the  original  thirty-nine  is  given  in  Investiga- 
tion of  Trusts,  1888,  Congress,  p.  350.  The  list  of  the 
resulting  twenty,  with  the  appraisal  of  their  prop- 
erty, is  given  in  Report  of  the  Industrial  Commission, 
1900,  i.,  p.  301.  The  capitalization  of  these  com- 
panies is  $102,233,700:  the  excess  of  the  appraisal 
over  the  capitalization  is  $19,397,612.63. 

80 


The  Standard  Oil  Company 

cessors  thereafter ;  and  no  subsequent  issue 
of  stock  should  be  made  by  the  companies 
except  to  these  trustees.  In  return  for 
the  stock  intrusted  to  them,  the  trustees 
were  to  deliver  trust  certificates,  equal  to 
the  par  value  of  the  stock  of  the  several 
Standard  Oil  Companies  to  be  established 
and  to  the  appraised  value  of  the  stocks  of 
other  companies  delivered  to  the  trustees. 
The  trustees  provided  for  were  nine  in 
number.  They  were  John  D.  Rockefeller, 
O.  N.  Payne,  and  William  Rockefeller, 
elected  to  hold  office  till  1885 ;  J.  A.  Bost- 
wick,  H.  M.  Flagler,  and  W.  G.  Warden,  to 
hold  office  till  1884;  and  Charles  Pratt, 
Benjamin  Brewster,  and  John  D.  Arch- 
bold,  to  hold  office  till  1883.  At  each 
annual  meeting  the  certificate  owners 
elected  three  trustees,  for  three  years  each, 
to  fill  vacancies  due  to  expiration  of  term. 
Such  was  the  "trust"  as  formed  by  the 
agreement  of  January  2,  1882.*^ 

1  The  trust  agreement  is  given  in  full  in  Investiga- 
tion of  Trusts,  Congress,  1888,  p.  307. 

6  8l 


The  Rise  and  Progress  of 

By  an  amendment  two  days  later  this 
agreement  was  slightly  changed,  as  it  was 
deemed  inexpedient  that  all  the  companies 
mentioned  should  transfer  their  property 
immediately  to  the  several  Standard  Oil 
Companies.  The  trustees  were  given  pow- 
er to  decide  what  companies  should  con- 
vey their  property  and  when  the  sale 
should  take  place.  The  powers  of  the 
trustees,  then,  as  defined  by  the  "trust" 
agreement,  were  to  collect  on  the  stock 
which  they  held  the  dividends  of  the 
several  constituent  companies,  and  after- 
wards, upon  the  trust  certificates  out- 
standing, to  disburse  their  receipts  as 
dividends.  / 

Four  years  before  the  formation  of  the 
trust,  two  pipe-line  companies — the  Sea- 
board Pipe-Line  Company  and  the  Equi- 
table Petroleum  Company — projected  to 
afford  an  outlet  to  the  seaboard,  had  been 
organized  by  oil  producers.1     Upon  their 

1  Investigation  of  Trusts,  Congress,  1888,  p.  696. 
82 


The  Standard  Oil  Company 

failure,  the  producers  organized  the  Tide- 
water Pipe-Line  Company,  which  ran  from 
the  Bradford  region  to  Williamsport,  a  dis- 
tance of  one  hundred  and  ten  miles;  and 
thence,  by  a  connection  with  the  Philadel- 
phia and  Reading  Railroad,  the  oil  was 
carried  a  distance  of  two  hundred  and 
fifty  miles  to  Philadelphia.1  On  the  ist  of 
June,  1879,  this  company  commenced  the 
shipment  of  oil.  The  railroads  were  not 
content  to  see  the  oil  traffic  slip  through 
their  hands ;  and  on  the  5th  of  June,  at  a 
conference  between  the  four  trust  lines 
at  Niagara  Falls,  resolute  measures  were 
adopted  to  drive  this  rival  transportation 
agent  from  the  business.  The  rate  on 
crude  oil  per  barrel  was  lowered  to  20  cents 
on  all  oil  of  the  Standard  "alliance"  mov- 
ing from  the  oil  regions  to  New  York,  Phil- 
adelphia, and  Baltimore.2    A  correspond- 

1  "Hepburn"  Report,  1879,  p.  3493;  Report  of  the 
Industrial  Commission,  1900,  i.,  p.  696. 

2  The  rates  are  given  in  full  in  "Hepburn"  Report, 
Exhibits,  1879,  pp.  621,  622. 

83 


The  Rise  and  Progress  of 

ing  reduction  of  the  rate  to  the  general 
public  was  made  from  $1.15  to  30  cents. 
These  rates  took  effect  at  once;1  and,  as 
competition  continued,  a  further  reduc- 
tion was  made  on  August  1st  to  15  cents 
per  barrel.2 

Throughout  the  period  of  the  organi- 
zation of  the  trust,  and  for  a  full  year 
after,  this  fierce  contest  between  the  rail- 
roads and  the  Tidewater  Pipe-Line  Com- 
pany continued.  The  immediate  effect,  of 
course,  was  to  benefit  the  shippers,  and 
particularly  the  largest  shipper,  which  was 
the  Standard.  The  ownership  by  the 
Standard  of  the  terminal  facilities  and  of 
the  greater  number  of  the  oil-cars  of  the 
railroads  now  became  a  fact  of  importance. 
In  consideration  of  its  heavy  investments 
in  these  interests,  and  of  its  agreement  to 
ship  and  to  unload  its  oil  at  its  own  risk, 
the  Standard  had  already  been  allowed  re- 
bates.3    But  now  the  Standard  began  the 

1  "Hepburn"  Report,   1879,  p.  3688. 

2  Ibid.,  p.  45.  3  Ibid.,  p.  147 1. 

84 


The  Standard  Oil  Company 

building  of  pipe-lines  to  the  seaboard  and 
the  formation  of  the  National  Transit  Com- 
pany. As  pipe-lines  were  a  cheaper  mode 
of  transportation  than  railways,  the  build- 
ing of  these  lines  made  necessary  a  read- 
justment of  freight  rates;  and,  as  the  pipe- 
lines then  building  could  not  carry  the  oil 
the  entire  distance,  contracts  for  joint  car- 
rying had  to  be  made  with  the  railroads. 
The  first  contract — made  between  the  Na- 
tional Transit  Company  and  the  Pennsyl- 
vania Railroad  on  May  6,  1881 — related 
to  the  apportionment  of  the  freight  when 
the  haul  was  partly  by  pipe-line  and  partly 
by  rail.  The  Pipe-Line  Company  guaran- 
teed the  railroad  one-third  of  the  trans- 
portation of  oil  to  the  seaboard.1  The 
Standard  was  to  pay  exactly  the  same 
rate  as  other  shippers  over  the  railroad. 
On  such  oil  as  was  carried  partly  by  pipe- 
line and  partly  by  rail  a  through  rate  was 
made,  of  which  the  pipe-line  naturally  re- 

1  Report  0}  the  Industrial  Commission,  1900,  i.,  pp. 
760-763. 

85 


The  Rise  and  Progress  of 

ceived  a  share ;  and,  finally,  the  Pipe-Line 
Company  agreed  to  remit  part  of  the 
charge  of  its  local  pipes  to  the  railroad. 
Instead  of  a  contract  for  rebates  to  the 
Standard,  this  was  a  contract  for  rebates 
to  the  railroad.  The  reason  for  this  con- 
tract was  that  the  seaboard  pipe-line  of 
the  Standard  did  not  extend  beyond  Ham- 
ilton, Pennsylvania;  and  to  compensate 
the  railroad  for  its  low  rate  of  freight  and 
for  its  grants  of  rights  of  way — no  free- 
pipe-line  law  then  existing  in  New  Jersey 
— these  rebates  were  provided. 

Strengthened  by  these  mutually  helpful 
contracts,  the  National  Transit  Company 
and  railroads  were  meanwhile  wearing  out 
the  Tidewater  Pipe -Line  Company,  and 
in  1883  forced  it  to  cease  its  opposition. 
The  company  was  never  absorbed  by  the 
Standard  Oil  Trust;  but  on  October  9th, 
by  an  agreement  with  the  National  Transit 
Company,  it  agreed  to  accept  as  its  share 
of  the  oil  traffic  eleven  and  one-half  per 
cent,  of  the  total  pipe-line  transportation 
86 


The  Standard  Oil  Company 

of  petroleum  to  the  seaboard,  and  was 
guaranteed  $500,000  in  annual  profits  for 
fifteen  years.1  With  this  settlement  the 
war  of  the  transportation  agents  ceased, 
and  the  Standard  Oil  Trust  established 
itself  in  the  strategic  position  which  sub- 
stantially controlled  the  transportation  of 
oil  to  the  seaboard.  By  the  early  seven- 
ties the  Standard  had  attained  the  pre- 
eminence in  mechanical  efficiency  which  it 
has  ever  since  maintained;  by  the  agree- 
ment with  the  Pennsylvania  Railroad  in 
1878  it  had  gained  a  dominance  over 
transportation  which  it  never  since  has 
lost ;  and  by  its  contract  in  1881  it  made 
possible  the  completion  of  its  pipe-line  to 
the  seaboard  and  its  independence  of  rail- 
roads. Such  contracts  as  the  Standard 
subsequently  made  with  the  Pennsylvania 
Railroad  were  agreements  by  which  the 
railroad  got  some  part  of  the  freight, 
though  it  did   no  part  of   the   carrying. 

1  Report  of  the  Industrial  Commission,   1900,  i., 
P.  738. 

87 


The  Rise  and  Progress  of 

The  Standard  Oil  Trust  now  gave  rebates 
instead  of  receiving  them.  Over  every 
branch  of  the  industry,  in  1883,  it  was 
supreme. 

1883-92 

From  the  very  beginning  of  the  oil  in- 
dustry in  Pennsylvania,  movements  for 
the  restriction  of  oil  production  had  been 
frequent.  Restriction  had  been  the  aim 
of  the  Petroleum  Producers'  Association 
at  its  organization  in  1869.  The  associa- 
tion had  maintained  an  agency  to  store  all 
oil  above  a  certain  amount  and  keep  it 
from  the  market.  This  early  ' '  shut-down ' ' 
failed  because  of  the  enormous  produc- 
tion in  Butler  County.  Succeeding  "  shut- 
downs" in  1872,  1874,  1876,  and  1878  met 
with  similar  fate.  In  1884  there  was  an- 
other general  movement  among  producers 
to  restrict  drilling ;  but,  through  the  refusal 
of  the  operators  who  were  running  large 
wells  in  the  new  Thorn  Creek  district,  the 


The  Standard  Oil  Company 

movement  was  only  partially  successful. 
It  led,  however,  to  the  organization  of 
the  Producers'  Associated  Oil  Company, 
with  a  capital  stock  enabling  it,  when  nec- 
essary, to  purchase  oil  property  in  order 
to  curtail  production.1 

On  the  i  st  of  October,  1887,  this  new 
organization,  embracing  eighty  -  five  per 
cent,  of  the  fourteen  thousand  producers 
in  the  oil  regions,  agreed  with  the  Standard 
Oil  Company  to  restrict  production.  From 
June  to  October  the  Producers'  Protective 
Association,  by  various  secret  and  public 
meetings,  had  encouraged  the  movement. 
The  conditions  of  the  industry  favored  the 
organization.  The  accumulated  stock  of 
oil  was  thirty -one  million  barrels,  prices 
were  below  the  remunerative  point,  and 
the  Standard  was  losing  by  the  deteriora- 
tion of  oil  in  its  store.  After  conference 
between  the  Standard  and  the  associated 
producers,  it  was  agreed  that  the  producers 

1  Report  0}  the  Industrial  Commission,  1900,  i.,  pp. 
426-430. 

89 


The  Rise  and  Progress  of 

should  restrict  their  production  one-third 
during  the  following  year,  in  consideration 
for  which  the  Standard  turned  over  to  the 
producers  six  million  barrels  of  oil,  at  the 
market  price  at  the  time  of  the  contract, 
and  secured  to  the  producers  the  profit 
from  the  anticipated  rise  in  prices.1 

By  this  bargain  the  producers  imme- 
diately profited.  On  the  oil  they  received 
from  the  Standard  they  made  9  cents  a 
gallon.  Encouraged  by  their  success,  they 
made  agreements  during  the  next  year  with 
the  Well  -  drillers'  Union  to  equalize  the 
amount  of  oil  produced  by  each  individ- 
ual.2 Although  it  was  not  possible  to 
bring  all  the  producers  into  the  agree- 
ment, the  price  of  crude  oil  was  advanced 
by  this  restriction  29  cents  per  barrel. 
The  price  of  refined  oil  to  consumers  was 
advanced  about  three-fourths  of  a  cent — 

1  Investigation  of  Trusts,  Congress,  1888,  p.  52. 

2  An  account  of  the  negotiations  and  copies  of  the 
contracts  are  given  in  Investigation  of  Trusts,  Con- 
gress, 1888,  pp.  52-60,  69.  See  also  Report  of  the 
Industrial  Commission,  i.,  pp.  429-432,  459-462. 

90 


The  Standard  Oil  Company 

an  increase  somewhat  less  than  the  ad- 
vance in  crude  oil.  ■  Although  the  Stand- 
ard Oil  Company  had  entered  into  the 
agreement  only  at  the  urgent  request  of 
the  producers,  as  the  chief  refiner  it  bore 
the  burden  of  the  advance;  and  when  the 
"  shut-down"  was  found  to  be  injuring  the 
laborers  employed  in  the  drilling  of  wells, 
and  the  Producers'  Association  set  aside 
one  million  barrels  of  oil  for  their  relief, 
the  Standard  added  another  million  for  the 
same  purpose.  This  philanthropy,  in  the 
end,  proved  not  unprofitable.  The  Stand- 
ard benefited  by  the  harmony  it  had  es- 
tablished; and  the  producers,  by  relieving 
the  well  -  drillers,  prevented  them  from 
working  for  producers  outside  the  agree- 
ment. 

As  was  to  be  expected,  the  results  of  this 
movement  were  only  temporary.  In  time 
the  "shut-down"  was  abandoned,  but  not 
until  it  had  gained  a  great  though  transient 
benefit,  and  had  given  the  impulse  to  the 
building  of  several  pipe-lines. 
9i 


The  Rise  and  Progress  of 

To  the  producers  the  Standard  had  come 
as  a  pacificator,  restoring  harmony  where 
before  had  been  mutual  suspicion  and  dis- 
tress. To  the  refiners,  however,  the  Stand- 
ard had  never  appeared  other  than  a  com- 
petitor, enabled  by  its  greater  size  to  secure 
favors  denied  its  smaller  rivals.  Freight 
discriminations,  before  the  passage  of  the 
Industrial  Commission  Act  in  1887,  were 
common ;  all  oil  shippers  received  some  re- 
bate from  the  published  rate,  the  amount 
varying  roughly  according  to  the  favorable 
position  of  the  refiner  for  making  his  bar- 
gains.1 How  completely  proper  this  seem- 
ed to  the  railroad  manager  of  that  day,  and 
how  sound  appeared  the  reasons  on  which 
it  was  based,  is  well  illustrated  by  the 
decision  of  the  Ohio  court,  in  1884,  in  a  suit 
brought  by  a  firm  of  independent  refiners 
against  the  Lake  Shore  and  Michigan 
Southern  Railroad  to  prevent  the  grant- 
ing of  rebates  to  the  Standard  Oil  Com- 

1  Report  0}  the  Industrial  Commission.  1900,  i.,  p. 
790. 

92 


The  Standard  Oil  Company 

pany  .*  The  rebates  complained  of,  the  court 
found,  amounted  to  10  cents  per  barrel 
on  all  the  oil  the  Standard  shipped ;  but 
the  consideration  for  these  rebates  the 
court  found  in  the  following  fact: 

"  Prior  to  1875  it  was  a  question  whether  the 
Standard  Oil  Company  would  remain  in  Cleve- 
land or  remove  its  works  to  the  oil-producing 
country,  and  this  question  depended  mainly 
upon  rates  of  transportation  from  Cleveland  to 
the  market;  prior  thereto,  the  Standard  Com- 
pany shipped  large  quantities  of  its  products  by 
water  to  Chicago  and  other  lake  points,  and 
from  thence  distributed  the  same  by  rail  to  in- 
land markets;  it  then  represented  to  the  de- 
fendant the  probability  of  such  removal;  water 
transportation  was  very  low  during  the  season 
of  navigation;  unless  some  arrangement  was 
made  for  rates  at  which  it  could  ship  the  year 
around  as  an  inducement,  it  would  ship  by  water 
and  store  for  winter  distribution;  it  owned  its 
tank-cars  and  had  tank  stations  and  switches, 
or  would  have,  at  Chicago,  Toledo,  Detroit,  and 

'  Investigation  of  Trusts,  Congress,  1888,  p.  552. 
Schofield,  Shurmer  &  Teagle  v.  Lake  Shore  and 
Michigan  Southern  Railroad. 

93 


The  Rise  and  Progress  of 

Grand  Rapids,  on  and  into  which  the  cars  and 
oil  in  bulk  could  be  delivered  and  unloaded 
without  expense  and  annoyance  to  defendant; 
it  had  switches  at  Cleveland  leading  to  its  works 
at  which  to  load  cars,  and  would  load  and  unload 
all  cars ;  the  quantity  of  the  oil  to  be  shipped  by 
the  company  was  very  large,  and  amounted  to 
ninety  per  cent,  or  more  of  all  the  oil  manu- 
factured or  shipped  from  Cleveland,  and,  if  sat- 
isfactory rates  could  be  agreed  upon,  it  would 
ship  over  defendant's  road  all  its  oil  products 
for  territory  and  markets  west  and  northwest  of 
Cleveland,  and  agree  that  the  quantity  for  each 
year  should  be  equal  to  the  amount  shipped  the 
preceding  year;  upon  the  faith  of  these  repre- 
sentations the  defendant  entered  into  a  contract ; 
the  rates  were  not  fixed  rates,  but  depended 
upon  the  general  card  tariff  rates  as  charged 
from  time  to  time  [by  which  its  shipments  were] 
substantially  to  be  carried  from  time  to  time  at 
about  10  cents  per  barrel  less  than  tariff  rates; 
in  consideration  of  such  reduced  rates  as  to  bulk 
oil,  the  Standard  Company  agreed  to  furnish  its 
own  cars  and  tanks,  load  them  on  switches,  and 
unload  oil  shipped  in  barrels  without  expense  to 
defendant,  and,  by  reason  thereof,  with  less  risk 
to  defendant ;  and  was  also  to  ship  all  its  freight 
to  points  west  and  northwest  of  Cleveland  (ex- 

94 


The  Standard  Oil  Company 

cept  small  quantities)  to  lake  ports  not  reached 
by  rail,  and  so  to  manage  the  shipments  as  to 
cars  and  times  as  would  be  most  favorable  to 
defendant.  .  .  . 

"  At  a  cost  exceeding  $100,000  the  Standard 
Company  had  constructed  the  terminal  facilities 
promised  and  herein  found;  in  actual  fact,  the 
risk  of  danger  from  fire  to  defendant,  the  ex- 
pense of  handling  in  loading  and  unloading,  and 
in  the  use  of  the  standard  tank-cars  is  less  than 
upon  oil  shipped  without  the  use  of  such  or 
similar  facilities;  the  Standard  Company  com- 
menced by  shipping  about  four  hundred  and 
fifty  thousand  barrels  per  year  over  defendant's 
road,  which  increased  from  year  to  year,  until, 
in  1882,  .  .  .  the  quantity  so  shipped  on  defend- 
ant's road  amounted  to  seven  hundred  and 
forty-two  thousand  barrels,  equal  to  two  thou- 
sand barrels,  or  one  full  tank-load,  per  day. 

"  Said  arrangements  are  not  exclusive,  but  are 
at  all  times  open  to  others  shipping  a  like  quan- 
tity and  furnishing  like  device  and  facilities." 

By  successive  contracts,  the  court  found, 

this   agreement   was   continued   in    1880, 

1882,  and   1883;  and,  in  conclusion,   the 

court  declared  that  the  evidence  presented 

95 


The  Rise  and  Progress  of 

supported  the  contention  of  the  Standard 
that  the  advantages  secured  to  the  Stand- 
ard by  its  contract  with  the  railroad  were 
not,  in  the  accepted  sense  of  the  term,  re- 
bates, but  were  an  equivalent  for  the  low- 
ered cost  of  freight.  In  so  holding,  the 
court  was  but  following  the  current  judg- 
ment of  the  time. 

But  there  were  at  that  time  other  de- 
partures from  the  regular  tariff  rates  which 
cannot  so  readily  be  explained.  Through- 
out 1888  there  were  sudden  and  distressing 
increases  in  the  tariff  rates  for  oil,  which 
seriously  inconvenienced  the  inland  re- 
finers.1 A  notorious  example  of  such 
charges  was  found  in  the  management  of 
the  Cleveland  and  Marietta  Railroad  by 
its  receiver  in  1885.  The  Standard,  it 
appears,  controlled  most  of  the  pipe-lines 
in  the  Macksburg  field  connecting  with 
the  several  stations  of  the  railway;  and 
its  local  manager  was  desirous  of  deter- 

1  Report  of  the  Industrial  Commission,  1900,  i.,  p. 
157- 

96 


The  Standard  Oil  Company 

mining  a  through  rate  on  oil  from  the 
well  to  Marietta.  Accordingly,  he  ar- 
ranged with  the  receiver  of  the  railroad 
that  the  rate  be  35  cents  per  barrel,  and 
that  the  railroad  should  collect  this  rate 
and  pay  over  to  the  Standard  25  cents 
for  pipeage.  This  agreement  was  put  in 
writing,  and  forwarded  for  approval  and 
execution  to  the  Standard  Oil  Company. 
Meanwhile  the  receiver  raised  the  tariff 
rate  for  oil  from  17^  cents  to  35  cents 
for  all  shipments  made  over  this  line, 
with  the  result  that  one  refiner,  carry- 
ing his  crude  oil  from  the  well  to  the 
station  by  his  own  pipe-line,  was  forced 
to  pay  35  cents  freight,  of  which  25 
cents  was  at  once  to  be  turned  over  to 
his  competitor,  the  Standard  Oil  Com- 
pany, for  pipeage  which  it  had  never 
rendered.  Whether  the  cost  of  pipeage 
warranted  so  large  a  proportion  of  the 
through  rate  going  to  the  Standard  is  a 
question  which  cannot  be  answered  off- 
hand. The  indefensible  method  of  col- 
7  97 


The  Rise  and  Progress  of 

lecting  the  combined  pipeage  and  freight 
charges  was  more  plain.  The  Standard 
Oil  Company  never  carried  this  contract 
through,  but  sent  it  back  to  its  manager 
with  instructions  to  end  the  arrangement 
and  refund  to  the  shippers  the  amount  of 
these  wrongful  rebates.  This  was  done 
before  suit  was  brought  to  remove  the 
receiver.1 

A  more  typical  example  of  the  rebates 
of  this  period  is  the  contract  between  the 
National  Transit  Company  and  the  Penn- 
sylvania Railroad.  According  to  this  agree- 
ment the  Transit  Company,  which  was  the 
transporting  agent  of  the  Standard  Trust, 
agreed  that,  if  out  of  the  total  amount  of 
oil  shipped  to  the  seaboard  the  Pennsyl- 
vania Railroad  should  not  have  moved 
twenty-six  per  cent.,  the  Transit  Com- 
pany should  ship  by  the  Pennsylvania 
Railroad  the  amount  required,  and  the 
railroad  should  be  entitled  to  one-half  the 

1  Report  of  the  Industrial  Commission,  1900,  i.,  pp. 
556-559- 

98 


The  Standard  Oil  Company 

current  rate  thereon.  By  another  con- 
tract of  the  same  date  it  was  provided 
that,  if  the  railroad  company  preferred, 
the  Transit  Company  itself  would  carry 
this  extra  quantity,  and  would  then  pay  to 
the  railway  freight  on  the  oil  thus  carried 
by  itself,  after  deducting  6  or  10  cents  a 
barrel  as  compensation  for  pipeage.  In 
return  for  these  stipulations  it  was  agreed 
that  all  joint  rates  from  any  delivery  point 
of  the  local  pipe-lines  to  any  refining  or 
terminal  point  should  be  fixed  by  the  rail- 
road in  concurrence  with  the  Transit  Com- 
pany; and  at  the  time  of  the  agreement 
this  rate  was  fixed  at  45  cents  to  the 
seaboard.1 

The  advantage  to  the  railroad,  under 
this  agreement,  is  manifest.  Throughout 
the  continuance  of  this  contract,  which 
was  the  last  one  made  and  continued  till 
1887,  there  was  a  regular  deficiency  in  the 
share  of  the  oil  to  be  carried  by  the  rail- 

1  Report  of  the  Industrial  Commission,  1900,  i.  pp. 
663-666. 

99 


The  Rise  and  Progress  of 

road,  amounting  in  some  months  to  eighty 
thousand  barrels,  and  settled  by  payments 
of  the  Transit  Company  to  the  railroad.1 
Essentially  it  was  a  contract  of  rebate  to 
the  railways  rather  than  of  rebate  to  the 
Standard,  the  motives  of  which  were  sim- 
ilar to  the  contract  of  1 88 1 .  It  was  a  pay- 
ment to  the  railroad  in  compensation  for 
grants  of  rights  of  way.  Other  pipe-lines 
could  not  get  through  to  the  seaboard  be- 
cause they  could  not  make  terms  with  the 
railroads.  The  advantage  accruing  to  the 
Standard  from  such  a  contract  as  this  was 
good-will,  of  which  it  stood  at  that  time 
in  great  need.  "The  pipe-line  was  then 
completed  to  the  seaboard,"  explains  Mr. 
Dodd,  solicitor  of  the  Standard.  "  It  could 
not  have  reached  that  point  without  the 
consent  of  the  railway  company,  as  no 
free-pipe-line  law  then  existed  in  the  State 
of  Pennsylvania.  It  was  still  necessary 
to  have  a  traffic  contract  with  the  railroad 

1  Report  of  the  Industrial  Commission,   1900,  i.f 
p.  761. 

IOO 


The  Standard  Oil  Company 

to  deliver  oil  to  the  railroads  at  different 
points  on  the  through  line."  Clearly  the 
injustice  of  this  contract,  if  any  there  be, 
should  be  laid  at  the  door  of  the  railways. 
To  them  rather  than  to  the  Standard  did 
the  greater  benefit  accrue.  And  if  this 
contract,  by  providing  that  joint  rates  for 
the  transportation  of  oil  should  be  fixed 
by  the  railroad  in  concurrence  with  the 
Transit  Company,  opened  the  way  to  such 
abuses  as  the  sudden  and  arbitrary  raising 
of  rates  at  less-important  shipping  points 
not  used  by  the  Standard,  the  blame  be- 
longs rather  with  the  railroad  than  with 
the  Standard  Oil  Company. 

The  passing  of  the  Interstate  Commerce 
Act,  in  1887,  makes  a  natural  division  in 
the  record  of  the  railroad  arrangements 
made  by  the  Standard.  By  the  terms  of 
that  act  discriminations  were  forbidden, 
and  such  contracts  with  shippers  as  had 
been  the  rule  since  the  late  sixties  were 
made  illegal.  The  Interstate  Commerce 
Act  seems  to  have  been  observed  by  the 
101 


The  Rise  and  Progress  of 

Standard  Oil  Company.  "Little  tes- 
timony," says  the  Industrial  Commission 
of  1900,  "was  brought  forward  to  prove 
that  it  still  actually  receives  lower  rates 
for  shipment  over  the  same  tracks  than 
its  competitors."1  In  the  testimony  be- 
fore the  commission  on  this  latter  point 
the  opinion  was  expressed  by  witnesses 
testifying  in  opposition  to  the  Standard 
Oil  Company  that  direct  discriminations 
and  rebates  are  still  received  by  the  Stand- 
ard; but  the  evidence  adduced  in  proof 
of  this  opinion  was  unsatisfactory,  and 
was  considered  entirely  inconclusive  by 
the  commission.2 

1  Report  of  the  Industrial  Commission,  1900,  i.,  p. 

158. 

s  Ibid.,  p.  159. 

Apart  from  hearsay  the  only  evidence  produced  to 
prove  the  existence  of  discrimination  in  favor  of  the 
Standard  were  the  letter  of  the  receivers  of  the  Balti- 
more and  Ohio  Railroad  to  the  Interstate  Commerce 
Commission,  December  22,  1898,  and  the  case  of 
Logan,  Emery,  and  Weaver  v.  the  Pennsylvania 
Railroad  Company. 

The  letter  of  receivers  Cowen  and  Murray  states: 

"Within  the  territory  north  of  the  Ohio  River 
I02 


The  Standard  Oil  Company 

In  other  ways  than  by  discriminations 
in  actual  rates  the  Standard  Oil  Company, 
after  1887,  secured  special  advantages  in 
transportation.     The  shipments  of  oil  from 

and  east  of  the  Mississippi  the  railroad  carriers  are 
transporting  the  larger  part  of  the  interstate  traffic 
at  rates  less  than  those  shown  in  the  published  tariff 
filed  with  your  commission,  which  are  by  statute 
the  only  lawful  rates. 

"While  this  condition  continues  there  will  exist 
the  unjust  discriminations  between  persons,  local- 
ities, and  particular  descriptions  of  traffic  the  pre- 
vention of  which  is  the  main  object  of  the  act  of 
establishing  your  commission.  Only  by  securing 
the  uniform  charging  of  the  published  rates  can  the 
just  quality  of  service  and  of  charge  required  by  law 
be  secured  either  between  persons  or  between  local- 
ities."  (p.  637.) 

This  letter  doubtless  sets  forth  a  deplorable  fact, 
but  how  it  relates  to  the  case  of  the  Standard  is  not 
clear. 

The  Logan,  Emery,  and  Weaver  case  was  brought 
in  1887  and  continued  until  1890.  The  president 
and  the  general  freight  agent  of  the  Pennsylvania 
Railroad  both  testified  in  1890  that  positively  no 
rebates  had  been  paid  since  1887.  But  the  audi- 
tors and  assistant  auditors  of  the  road  testified 
that  rebates  from  8  to  28  cents  per  barrel  had 
been  granted  since  1887.  From  the  facts  of  the 
case  it  appears  that  the  Standard  Oil  Company 
was  in  no  way  concerned.     Indeed,  in  the  evidence, 

103 


The  Rise  and  Progress  of 

those  localities  which  it  chose  for  distrib- 
uting points  were  so  large  that  the  freight 
rates  for  that  locality  were  naturally  most 
favorable  to  this  chief  commodity  of  ship- 
as  cited  by  witnesses  testifying  in  opposition  to  the 
Standard,  the  chief  recipient  of  the  rebates  was  the 
Bear  Creek  Oil  Refining  Company,  with  which  B.  B. 
Campbell,  originator  of  the  Petroleum  Producers' 
Union,  was  associated.  Mr.  Campbell  testified  that 
from  October  i,  1884,  until  July  1,  1888,  his  com- 
pany had  received  rebates  on  shipments  from  Cole- 
man Station  to  Philadelphia,  Communipaw,  and 
Bolivar  amounting  in  all  to  $48,101.  The  case  was 
settled  out  of  court,  as  the  plaintiffs  were  too  poor 
to  carry  the  suit  further.  A  settlement  was  accept- 
ed according  to  which  the  railway  paid  $35,000  and 
the  costs  of  the  suit.      (pp.  633,  635,  660.) 

This  reported  case,  the  only  documentary  evi- 
dence directly  relating  to  discriminations  in  the  oil 
traffic,  explicitly  excludes  the  Standard  Oil  Com- 
pany and  incriminates  only  a  leading  independent 
refiner. 

Replying  to  these  charges,  Mr.  Archbold,  vice- 
president  of  the  Standard  Oil  Company,  submitted 
letters  from  officers  of  leading  railways  of  the  coun- 
try in  reply  to  a  circular  inquiry  sent  out  by  the 
Standard  Oil  Company  asking  whether  the  respec- 
tive roads  had  granted  any  advantages  to  that  com- 
pany "either  by  direct  tariff,  rebate,  under-billing, 
or  in  any  other  way."  These  letters  specifically 
deny  that  any  such  preferences  have  been  given  to 

104 


The  Standard  Oil  Company 

ment.  Competitive  points,  points  where 
several  railroads  compete,  or  where  water 
transportation  competes  with  the  railways, 
were  generally  fixed  upon  as  distributing 
centres.  Accordingly,  lower  freight  rates 
prevailed  at  the  large  shipping  points  of  the 
Standard  than  prevailed  at  places  where 
its  competitors  made  most  of  their  ship- 
ments. The  Standard  Oil  Company  located 
its  refineries  at  points  nearer  the  place  of 
consumption,  and  so  economized  in  ship- 
ping distance.  Thus  it  transferred  most 
of  its  business  from  Cleveland  to  Whiting, 
Indiana,  in  order  to  be  nearer  the  Southern 
market  and  to  the  West,  and  began  to 
supply  the  Eastern  market  from  its  re- 
fineries at  Bayonne,  New  Jersey.  By  wise 
distribution  of  its  refineries  the  Standard 
became  largely  independent  of  the  chang- 
ing freight  rates  that  distressed  those  in- 

the  Standard  Oil  Company,  and  many  of  them 
further  state  that  the  Standard  Oil  Company  has 
used  its  influence  with  the  railways  to  maintain 
agreed  tariff  rates  and  to  support  the  Interstate 
Commerce  Act.     (pp.  515-528.) 

I05 


The  Rise  and  Progress  of 

dependent  refiners  who  shipped  their  oil 
long  distances.1  A  less  honorable  advan- 
tage, it  has  been  alleged,  accrued  to  the 
Standard  by  the  practice,  among  the  rail- 
roads, of  under-billing  the  weight  of  the 
contents  of  the  tank-car.  As  to  interstate 
shipments,  this  has  been  specifically  denied 
by  representatives  of  the  Standard  Oil 
Company;  and  the  instances  where  such 
under-billing  has  occurred  are  explained 
as  occasional  errors.2 

Immediately  after  the  passage  of  the 
Interstate  Commerce  Act  and  the  creation 
of  the  Interstate  Commerce  Commission 
the  relative  charges  and  advantages  of 
tank  and  barrel  shipments  were  brought 
in  issue.  Prior  to  1888  it  was  universal 
to  charge  lower  rates  per  one  hundred 
pounds  for  oil  in  tanks  than  for  oil  in 
barrels;  but  in  1888  the  Interstate  Com- 

1  A  vast  amount  of  evidence  bearing  on  this  point 
is  summarized  in  Report  of  the  Industrial  Commis- 
sion, 1900,  i.,  pp.  161-163. 

2  Evidence  bearing  on  this  point  is  digested  in 
Report  0}  the  Industrial  Commission,  1900,  i.,  p.  165. 

106 


The  Standard  Oil  Company 

merce  Commission  ordered  that  the  rates 
on  oil  in  tank-cars  and  in  barrels  should 
be  the  same,  the  weight  of  the  barrels 
being  included  in  the  weight  charged  upon. 
The  railways  complied  generally  with  the 
order  of  the  Interstate  Commerce  Com- 
mission; but  later,  when  the  independent 
refiner  secured  an  order  from  the  com- 
mission that  the  weight  of  barrels  should 
be  disregarded  in  charging  for  shipments 
of  oil,  the  railways  refused  to  comply  with 
this  order  or  to  pay  the  damages  assessed 
in  reimbursement  of  the  charge  made  for 
the  weight  of  the  barrels.1  As  to  the  rel- 
ative advantages  of  tank-cars  and  barrels, 
and  whether  a  relatively  lower  charge  for 
oil  in  tank-cars  than  for  oil  in  barrels  is 
justifiable,  there  was  much  disagreement. 
The  tank-car,  it  appears,  is  always  un- 
loaded by  the  consignee  and  loaded  by 
the  shipper,  while  the  contrary  is  usually 

1  "A  case  raising  this  point  is  pending  before  the 
United    States   courts." — Report   of   the   Industrial 
Commission,  1900,  i.,  p.  788. 
107 


The  Rise  and  Progress  of 

true  with  barrels.  The  barrel,  it  was  urged, 
should  not  be  carried  free  of  charge  be- 
cause it  is  a  merchantable  article  and  its 
value  is  added  to  the  price  of  the  oil  sold. 
On  the  other  hand,  the  box-car  in  which 
the  barrels  are  shipped  can  contain  a 
return  load,  while  the  tank-cars  must  be 
returned  empty.1  The  Standard  is  the 
largest  shipper  by  tank  -  cars  and  owns 
most  of  the  tank-cars  in  use.  It  gains 
not  only  such  advantages  as  are  given  to 
shippers  by  tank-cars,  but  also  the  mileage 
of  three-fourths  of  a  cent  per  mile  which 
is  paid  by  the  railways  for  the  use  of  its 
cars.2 

With  nothing  more  exciting  than  an  oc- 
casional case  before  the  Interstate  Com- 
merce Commission  regarding  shipments  by 
tank-car,  the  Standard  Oil  Trust  continued 

1  This  question  is  discussed  by  the  Interstate  Com- 
merce Commission  in  the  following  cases:  i.,  pp.  503, 
722  ;  ii.,  p.  389  ;  iii.,  p.  186  ;  iv.,  p.  228  ;  v.,  pp.  193, 
660. 

9  Report  of  the  Industrial  Commission,  1900,  i.,  pp. 
167-170. 

108 


The  Standard  Oil  Company 

from  1887  until  1892.  Its  growth  and 
prosperity  had  been  steady.  The  property 
of  the  various  companies  that  entered  the 
trust  in  1882  was  valued  at  $75,000,000. 
In  1892  the  value  was  estimated  at  $121,- 
631,312  ;  and  fifty  per  cent,  of  this  increase 
had  come  from  profits  invested  and  the 
remainder  from  additional  capital  sub- 
scribed.1 The  dividends  meanwhile  had 
risen  from  five  and  a  quarter  per  cent,  in 
1882  to  twelve  per  cent,  in  1891.  During 
the  ten  years  following  1882  there  had 
been  a  gentle  decrease  in  the  price  of  re- 
fined oil  and  a  slight  decrease  in  the  dif- 
ference between  the  price  of  refined  and 
the  price  of  crude  oil — a  difference  which 
measures  the  charge  for  refining.2  The 
attitude  of  the  Standard  Oil  Trust  during 
these  years  was  one  of  quiet  dominance. 
It  was  now  to  meet  an  unexpected  dif- 

1  Statement  of  Mr.  S.  C.  T.  Dodd,  Report  of  the 
Industrial  Commission,  1900,  i.,  p.  799. 

2  Industrial  Combinations  and  Prices,  by  J.  W. 
Jenks,  Report  of  the  Industrial  Commission,  1900,  i., 
P-  52- 

109 


The  Rise  and  Progress  of 

ficulty  in  the  courts,  which  rendered  neces- 
sary a  complete  change  of  organization. 

1892-1903 

In  1 89 1  the  State  of  Ohio,  by  its  at- 
torney-general, began  action  to  oust  the 
Standard  Oil  Company  of  its  corporate 
rights,  on  the  ground  that  it  had  abused  its 
corporate  franchises  in  becoming  a  party 
to  an  agreement  against  public  policy.  The 
petition  averred  that  in  "violation  of  law 
and  in  abuse  of  its  corporate  powers,  and 
in  the  exercise  of  privileges,  rights,  and 
franchises  not  conferred  upon  it,"  the  de- 
fendant company  had  become  a  party  to 
the  trust  agreements  of  1882.  "All  the 
owners  and  holders  of  its  capital  stock, 
including  all  the  officers  and  directors  of 
said  defendant  company,  signed  said  agree- 
ments without  attaching  the  corporate 
name  and  seal."  Prior  to  the  dates  of  the 
trust  agreement  aforesaid,  the  petition  con- 
tinued, the  defendant's  capital  stock  con- 
110 


The  Standard  Oil  Company 

sis  ted  of  thirty-five  thousand  shares.  Upon 
the  signing  of  said  agreements  thirty-four 
thousand  nine  hundred  and  ninety-three 
shares  of  said  stock,  belonging  to  the  per- 
sons who  signed  the  agreement,  were  trans- 
ferred upon  the  defendant's  books  to  the 
nine  trustees  appointed  and  named  in  the 
agreement,  by  virtue  of  which  "the  nine 
trustees  have  been,  ever  since  the  signing 
of  said  agreements,  and  still  are,  able  to 
choose  and  have  chosen  annually  such 
boards  of  directors  of  said  defendant  com- 
pany as  they  (said  nine  trustees)  have 
seen  fit,  and  are  able  to  and  do  control 
the  action  of  the  defendant  in  the  conduct 
and  management  of  its  business."1 

In  answer  to  this  petition  the  Standard 
Oil  Company  denied  that  it  had  become 
a  party  to  either  of  the  agreements  in  said 
petition  set  forth,  or  that  it  had  at  any 
time  observed  or  carried  out  those  agree- 
ments.    "  Said  agreements,"  continued  the 

1  "  State  ex  rel.  v.  Standard  Oil  Company,  49  Ohio 
St.,"  pp.  138-155. 

Ill 


The  Rise  and  Progress  of 

answer,  "were  agreements  of  individuals 
in  their  individual  capacity  and  with  ref- 
erence to  their  individual  property,  and 
were  not  nor  were  they  designed  to  be 
corporate  agreements,  and  defendant  de- 
nies that  said  agreements  have  illegally 
affected  its  corporate  capacity  or  that 
defendant  has  permitted  its  corporate 
powers,  business,  and  property  to  be  ex- 
ercised, conducted,  and  controlled  in  an 
illegal  manner."  * 

By  a  demurrer  to  the  defendant's  plea 
the  issue  was  squarely  raised  whether  the 
act  of  all  the  stockholders,  officers,  and 
directors  of  a  corporation  may  rightly  be 
called  the  act  of  the  corporation.  "It 
seems  to  us,"  the  plaintiff  argued,  "im- 
possible to  read  the  agreement  and  con- 
sider the  proceedings  which  confessedly 
have  taken  place  under  it  without  reach- 
ing the  conclusion  that  there  has  been  a 
studious  design  and  effort  on  the  part  of 

1 "  State  ex  rel.  v.  Standard  Oil  Company,  49  Ohio 
St.,"  pp.  155-158. 

112 


The  Standard  Oil  Company 

the  promoters  of  the  trust  scheme  to  obtain 
all  the  advantages  of  the  actual  presence 
and  participation  of  the  defendant  cor- 
poration in  the  objects  and  purposes  of 
the  agreement  without  formally  making 
it  a  party  to  it.  But  is  substance  to  be 
sacrificed  to  shadow  ?  Have  we  not  shown 
sufficient  actual  corporate  conduct  to  ob- 
viate the  necessity  for  formal  corporate 
action,  such  as  the  adoption  of  resolutions 
or  the  signing  of  a  name?"  * 

The  court  adopted  the  argument  of  the 
plaintiff,  and  in  its  decision  handed  down 
March  2,  1892,  based  its  rule  on  substan- 
tially the  following  reasons : 

"A  corporation,  apart  from  the  persons  who 
compose  it,  is,  by  the  fiction  of  the  law,  to  be 
regarded  as  a  legal  entity  only  for  convenience 
in  the  transaction  of  its  business.  When  all  or 
a  majority  of  the  stockholders'  corporation  do 
an  act  which  affects  the  property  and  business 
of  the  company,  and  which,  through  the  control 

1 "  State  ex  rel.  v.  Standard  Oil  Company,  49  Ohio 
St.,"  p.  163. 

8  II3 


The  Rise  and  Progress  of 

their  numbers  give  them  over  the  selection  and 
conduct  of  the  corporate  agencies,  does  affect 
the  property  and  business  of  the  company  in 
the  same  manner  as  if  it  had  been  a  formal  reso- 
lution of  its  board  of  directors,  and  the  act  so 
done  is  ultra  vires  of  the  corporation  and  against 
public  policy,  the  act  should  be  regarded  as  the 
act  of  the  corporation,  and,  to  prevent  the  abuse 
of  the  corporate  power,  may  be  challenged  by 
the  State.  The  trust  agreements  in  question 
are  acts  which  must  be  regarded  as  the  acts  of 
the  corporations,  and,  as  such,  ultra  vires;  and, 
tending  as  they  do  to  the  creation  of  a  monopo- 
ly, to  the  control  of  prices  as  well  as  of  produc- 
tion, these  acts  are  also  against  public  policy, 
and  accordingly  contrary  to  law."  x 

The  place  this  case  occupies  in  the  law 
of  corporations  is  of  the  first  importance. 
A  previous  case,  in  which  the  Sugar  Trust 
was  defendant,2  had  decided  that  an 
agreement  of  associations  to  which  the 
corporations  were  party  was  ultra  vires. 
Further  than  declaring  partnership  of  cor- 

1  "49  Ohio  St.,"  pp.  176-189. 

2  "  People  v.  North  River  Sugar  Refining  Com- 
pany, 121  N.  Y.,"  p.  582. 

114 


The  Standard  Oil  Company 

porations  illegal,  however,  the  law  had  not 
yet  gone;  and  upon  the  question  whether 
such  combination  was  illegal,  because  in 
restraint  of  trade  and  opposed  to  public 
policy,  the  court  had  declined  to  express 
an  opinion.  In  the  instance  of  the  Stand- 
ard Oil  Company  the  court  made  a  bold 
advance:  it  not  only  forbade  members  of 
several  corporations  to  combine  as  such 
and  merge  their  interests  in  a  trust,  but 
it  also  declared  such  combination  a  re- 
straint of  trade,  illegal,  and  quite  opposed 
to  public  policy,  and  by  the  force  of  its 
decision  put  an  end  to  the  trust  as  a  form 
of  business  combination.1 

Accordingly,  in  1892,  the  Standard  Oil 
Trust  was  dissolved  and  the  separate  es- 
tablishments and  plants  reorganized  into 
twenty  constituent  companies.  The  trust 
certificates,  when  surrendered,  were  re- 
placed by  a  proportion  of  the  shares  of 
each  company,  properly  divided.     By  the 

»S.  C.  T.  Dodd,  "The  Present  Legal  Status  of 
Trusts,"  7  Harvard  Law  Review,  p.  157, 

"5 


The  Rise  and  Progress  of 

form  of  transfer  adopted  the  trustees 
placed  in  the  hands  of  their  attorney  the 
amount  of  shares  held  by  the  trustees  in 
the  several  companies  of  the  trust,  and 
authorized  the  attorney  to  secure  from 
each  of  these  companies  transfer  upon 
their  corporate  books  of  stock  certificates 
for  whole  shares  and  scrip  for  fractional 
shares  thereof.  Although  the  trust  was 
formally  dissolved,  the  men  who  were  the 
trustees  hold  a  majority  of  the  stock  in 
all  the  different  companies  which  composed 
the  trust,  so  that  they  work  together  as 
harmoniously  as  before.  The  replacement 
of  trust  certificates  by  proportional  shares 
of  stock  in  the  separate  companies  con- 
tinued slowly  and  is  not  yet  complete. 
Substantial  unity  of  action  among  the 
several  companies  was  not  changed.1 

1  Precisely  what  may  be  called  a  "monopoly  in 
restraint  of  trade"  the  courts  have  not  clearly  de- 
cided. Indefinite  increase  of  business,  the  fixing  of 
arbitrary  prices,  and  the  agreement  not  to  trade 
with  any  one  that  trades  with  others  than  the  cove- 
nantors have  all  been  held  not  to  be  "monopoly" 

116 


The  Standard  Oil  Company 

Since  the  agreement  between  the  Tide- 
water Pipe-Line  Company  and  the  Na- 
tional Transit  Company,  1883,  by  which 
the  Standard  "alliance"  had  attained  the 
dominant  position  in  the  transportation 
situation,  there  had  been  few  attempts  on 
the  part  of  the  independent  producers  to 
build  pipe-lines.  Under  the  impulse  of  the 
agreement  among  the  producers  and  the 
Standard,  in  1887,  to  restrict  the  pro- 
duction of  oil,  the  Producers'  Oil  Com- 
pany, Limited,  had  been  organized  and  a 
pipe-line  built  from  Titusville  and  Oil  City 
to  the  new  McDonald  oil-field.     But  this 

under  the  federal  anti-trust  act.  On  the  other  hand, 
American  courts  have  held  that  the  fact  that  "mo- 
nopoly" has  cheapened  prices  will  not  be  considered, 
and  that  it  makes  no  difference  whether  the  monop- 
oly be  created  by  "contract"  or  "patent";  the  peo- 
ple, they  declare,  ought  not  as  a  body  to  be  em- 
ployees and  servants.  A  "monopoly"  need  not  be 
"permanent"  or  "complete";  it  may  exist  even  if 
the  article  be  susceptible  of  "indefinite  production," 
and  occurs  when  there  is  a  "limitation"  of  "com- 
petition" and  "production"  with  a  view  to  "ad- 
vance prices."  (Cases  are  collected  in  7  Harvard 
Law  Review,  pp.  348-355.) 

117 


The  Rise  and  Progress  of 

was  a  local  pipe -line,  and  was  speedily 
absorbed  by  another  company,  the  Pro- 
ducers' and  Refiners'  Oil  Company,  in 
which  independent  refiners  as  well  as  pro- 
ducers were  interested.  In  1890  occurred 
the  first  attempt  on  the  part  of  the  inde- 
pendent refiners  to  build  to  the  seaboard 
a  pipe -line  which  should  afford  them 
transportation  facilities  equal  to  those  of 
the  Standard.  With  this  aim  in  view  the 
United  States  Pipe-Line  was  projected. 

The  prime -mover  and  first  president 
of  this  company  was  Mr.  Lewis  Emery, 
an  independent  refiner  in  Bradford,  Penn- 
sylvania. To  avoid  heavy  transportation 
charges,  he  had  determined  in  1890  to  build 
a  pipe-line  to  the  coast ;  and,  pending  the 
farther  extension  of  his  line,  he  had  gone 
to  the  president  of  the  Reading  Railroad 
to  secure  a  contract  for  transporting  oil  by 
that  railroad  from  Williamsport,  Pennsyl- 
vania. He  was  unable  to  make  satisfac- 
tory terms,  and  accordingly  determined 
to  lay  a  pipe-line  along  the  boundary  of 
118 


The  Standard  Oil  Company 

New  York  and  Pennsylvania  to  Hancock, 
New  York,  and  to  secure  a  contract  with 
the  New  York,  Ontario  and  Western  Rail- 
road for  transporting  oil  to  the  Hudson, 
with  a  right  to  construct  a  pipe-line  later 
along  its  tracks.  This  contract  was  se- 
cured, and  straightway  the  task  of  getting 
right  of  way  for  the  pipe-line  was  begun. 
Immediately  the  usual  obstacle  ap- 
peared.1 The  opponents  of  the  new  com- 
pany began  to  seek  the  right  of  way  over 
the  same  route.  They  bought  mortgages 
against  pieces  of  land  along  the  route,  to 
induce  the  owners  to  give  them  another 
right  of  way.  They  bought  strips  of  land 
crossing  the  projected  route.  The  rail- 
roads also  proved  unsympathetic.  When 
an  attempt  was  made  to  lay  the  pipe-line 
under  the  Erie  Railroad  at  Bradford,  it 
was  opposed  by  force,  and  later  prevented 
by  injunction  from  the  courts.  Another 
attempt  to  cross  the  Erie  at  Hancock  met 

1  Report  of  the  Industrial  Commission,  1900,  i.,  pp. 
445-  486. 

119 


The  Rise  and  Progress  of 

with  similar  fate.  As  a  result,  the  pipe- 
line had  to  be  constructed  back  seventy 
miles  to  the  Susquehanna  River,  and  built 
from  Athens  to  Wilkesbarre.  The  cross- 
ing of  every  railroad  brought  on  a  legal 
contest,  and  before  Wilkesbarre  was 
reached  $150,000  had  been  spent  in  liti- 
gation.1 

These  vexatious  delays  were  not  differ- 
ent in  degree  or  kind  from  those  met  by 
any  railroad  or  pipe-line  in  the  securing 
of  its  right  of  way.  In  almost  every  case 
they  were  due  to  the  desire  of  land-owners 
and  speculators  to  extort  from  the  con- 
structing company  a  high  price  for  what 
the  company  absolutely  needed.  The 
National  Transit  Company,  no  less  than 
the  United  States  Pipe-Line,  had  met  these 
difficulties.2  In  the  instance  of  the  United 
States  Pipe-Line  Company  the  motive  for 

1  Testimony  of  Mr.  Emery,  Report  of  the  Industrial 
Commission,  1900,  i.,  pp.  650-655. 

2  Report  of  the  Industrial  Commission,  1900,  i.,  pp. 
445.  486. 

I20 


The  Standard  Oil  Company 

the  opposition  of  the  railroads  was  clearly 
the  desire  to  preserve  the  great  advantages 
in  the  oil  traffic  which  their  contract  with 
the  National  Transit  Company  had  secured 
them.  The  Standard  Oil  Company,  it  ap- 
pears, was  not  engaged  in  these  obstruc- 
tionary  tactics — for  the  very  sufficient  rea- 
son, indeed,  that  the  projected  pipe -line 
much  more  vitally  concerned  the  interests 
of  the  railroads  than  it  did  those  of  the 
Standard. 

For  some  time  the  pipe-line  transported 
oil  from  Wilkesbarre  by  rail  over  the  New 
Jersey  Central  Railroad.  It  then  sought 
to  continue  its  course  to  the  seaboard.  It 
crossed  the  Pennsylvania  Railroad  by  pur- 
chasing an  acre  of  land.  When  it  reached 
the  Delaware,  Lackawanna  and  Western 
Railroad  it  bought  a  farm  in  Washington, 
New  Jersey,  over  which  the  railroad  cross- 
ed, hoping  that  it  might  lay  a  pipe-line 
under  the  culvert.  One  Saturday  night  it 
laid  its  pipes  and  stationed  an  armed  force 
of  fifty  men  to  protect  them.     Next  Mon- 

121 


The  Rise  and  Progress  of 

day  two  wrecking-cars  of  the  railroad,  with 
two  hundred  and  fifty  men,  rode  in  from 
Hoboken,  and  attempted  to  oust  the  em- 
ployees of  the  pipe-line  company.  Resist- 
ance was  made,  and,  to  compromise  the 
matter,  it  was  arranged  that  men  on  each 
side  should  be  arrested  in  order  to  make  a 
peaceable  legal  fight  in  the  courts.  But 
while  these  proceedings  were  going  on  a 
couple  of  locomotives  were  brought  up 
by  the  railroad,  and  hot  coals,  hot  water, 
and  stones  were  thrown  into  the  culvert. 
Finally  the  railroad  employees  were  driven 
away,  and  the  pipe-line  employees  secured 
rifles  and  held  possession  of  the  field  for 
seven  months.  The  lower  courts  decided 
in  favor  of  the  pipe -line,  but  after  four 
years  of  litigation  the  Supreme  Court  of 
New  Jersey  decided  that  the  pipe-line  must 
be  removed. 

Eventually  the  United  States  Pipe-Line 
will  build  to  Philadelphia.  Meanwhile  it 
transports  its  oil  from  Washington,  New 
Jersey,  fifty  miles  over  the  New  Jersey 

122 


The  Standard  Oil  Company 

Central  Railroad  to  New  York,1  at  a  rate 
much  lower  than  the  Standard  has  ever 
received  for  like  distances.  According  to 
the  contract  between  the  railroad  and  the 
Pipe-Line  Company,  crude  oil  is  carried 
fifty-two  and  one-half  miles  at  the  rate  of 
$7.93  per  tank-car,  containing  twenty  tons ; 
and  the  railroad  returns  the  empty  cars 
free.  The  contract  is  for  one  hundred 
years,  and  may  be  abrogated  by  the  pipe- 
line upon  five  years'  notice,  the  railroad 
having  no  right  to  abrogate  it.2 

Meantime  the  Standard  Oil  Company 
bought  a  large  proportion  of  the  stock  of 
the  Producers'  Oil  Company,  with  a  view, 
as  it  would  appear,  to  securing  a  control- 
ling voice  in  its  management ;  but  it  was  so 
opposed  in  its  ownership  that  it  transferred 
its  shares  to  a  certain  Mr.  John  J.  Carter. 
Mr.  Carter  brought  suit  to  be  allowed  to 
vote  his  stock,  but,  as  the  organization  was 
a  limited  partnership,  the  courts  upheld 

1  Report  of  the  Industrial  Commission,  1900  i., 
pp.  650-655.  2  Ibid.,  pp.  513,  529. 

123 


The  Rise  and  Progress  of 

the  company  in  denying  him  admission.1 
With  the  United  States  Pipe-Line  Com- 
pany the  National  Transit  Company  was 
more  successful.  It  secured  $383,000  out 
of  a  total  of  $1,119,000  of  stock,  and,  after 
permission  to  attend  the  meetings  of  the 
company  and  to  vote  the  stock  had  been 
refused  by  unaminous  vote  of  the  other 
stockholders,  the  courts  decided  in  favor 
of  the  National  Transit  Company.  The 
purchase  of  stock  was  made,  says  Mr. 
Archbold,  "with  a  view  to  having  such 
knowledge  as  we  could  have  rightfully 
through  such  ownership — as  we  should  ac- 
quire in  the  progress  of  the  affair"  ;2  and  this 
information  the  National  Transit  Company 
gets  from  its  one  director  upon  the  board 
of  the  United  States  Pipe-Line  Company.3 
To  prevent  the  Standard  Oil  Company 
from  obtaining  control  of  these  indepen- 
dent organizations,  the  Pure  Oil  Company 
was  projected  in  June,  1895,  to  secure  con- 

1  Report  of  the  Industrial  Commission,  1900,  i., 
27°»  577-  2  Ibid.,  p.  577.  3  Ibid.,  p.  656. 

124 


The  Standard  Oil  Company 

trol  of  the  other  independent  companies. 
In  1897  the  Pure  Oil  Company  was  or- 
ganized as  a  New  Jersey  corporation  with 
authorized  capital  stock  of  $1,000,000,  of 
which  $377,000  has  been  paid  in.  The 
business  of  the  company  has  been  market- 
ing refined  oil,  especially  in  Germany,  and 
it  has  proposed  to  increase  its  capital  to 
$10, 000, 000. x  In  its  structure  this  com- 
pany is  curiously  like  the  former  Standard 
Oil  Trust.  The  holders  of  sixty-six  thou- 
sand shares  in  the  company,  being  more 
than  a  majority,  vest  the  voting  power  of 
such  shares  in  fifteen  persons  for  twenty 
years ;  and  it  is  agreed  that  one-half  of  all 
shares  hereafter  subscribed  shall  similarly 
be  transferred  to  the  trustees.  The  owner- 
ship of  the  shares  may  be  transferred,  but 
purchasers  have  no  rights  other  than  those 
provided  by  the  trust  agreement.  The 
trustees  are  to  vote  as  a  unit,  to  the  full 
number  of  the  shares  they  hold,  at  the  elec- 

1  Report  of  the  Industrial  Commission,   1900,  i., 
p.  261. 

125 


The  Rise  and  Progress  of 

tion  of  directors.  One-third  of  the  trus- 
tees retire  annually,  and  their  successors 
are  elected  by  the  general  stockholders. 
By  a  vote  of  three-fifths  of  both  classes  of 
stockholders,  on  the  redemption  of  the 
preferred  shares  at  $110,  the  trust  may  be 
cancelled.1  The  formation  of  the  voting 
trust,  it  was  claimed,  was  made  necessary 
by  the  attempt  of  the  National  Transit 
Company  to  secure  control  through  the 
purchase  of  shares  of  the  Producers'  Oil 
Company  and  the  United  States  Pipe-Line 
Company.  In  order  to  keep  the  control  of 
the  latter  company  in  hands  friendly  to 
the  independent  interests,  there  was  de- 
vised a  voting-trust  agreement,  according 
to  which  the  signers  vested  their  interests 
in  the  stock  in  a  certain  Mr.  A.  D.  Wood  as 
trustee  for  five  years  from  the  ist  of  April, 
1893,  unless  sooner  terminated  by  a  vote 
of  three-fourths  of  the  stock  so  held  in 

1  A  copy  of  the  trust  agreement  of  the  Pure  Oil 
Company  is  given  in  Report  of  the  Industrial  Com- 
mission, 1900,  i.,  pp.  466-470. 

J26 


The  Standard  Oil  Company 

trust.  Mr.  Wood  was  allowed  full  power 
to  elect  officers,  but  was  bound  to  vote  for 
persons  interested  in  the  business  as  in- 
dependent refiners.1  It  is  the  purpose  of 
the  Pure  Oil  Company,  at  the  expiration 
of  this  trust  agreement,  to  anticipate  any 
attempt  of  the  Standard  Oil  Company  to 
control  the  company. 

While  the  independent  refiners  have 
been  seeking  security  in  the  trust  form  of 
organization,  the  Standard  Oil  Company 
has  adopted  the  contrary  policy.  In  1892 
the  trust  dissolved  into  its  constituent 
companies,  the  former  trustees  holding  a 
majority  of  the  stock  in  each  corporation 
and  the  holders  of  trust  certificates  ex- 
changing them  for  the  stock  of  the  several 
companies  in  agreed  proportion.  By  pure- 
ly informal  harmony,  a  unity  of  action 
among  these  corporations  was  maintained. 
A  large  quantity  of  trust  certificates  were 
still  outstanding ;  and  the  dividends,  when 

1  Report  of  the  Industrial  Commission,  1900,  i.,  p. 
no. 

127 


The  Rise  and  Progress  of 

declared,  were  at  a  certain  percentage  upon 
these  outstanding  certificates  and  at  a 
properly  adjusted  rate  upon  the  capital 
stock  of  the  different  companies,  so  that 
the  rate  of  dividends  might  be  considered 
as  if  it  were  entirely  on  the  trust  certificates 
at  their  former  full  amount.  In  order  to 
secure  more  complete  unity  and  to  provide 
for  the  claims  of  smaller  holders  of  trust 
certificates,  the  Standard  Oil  Company 
was  organized  under  the  laws  of  New 
Jersey  in  1899.  This  corporation,  though 
practically  a  new  organization,  was  in  form 
a  continuation  of  the  old  Standard  Oil 
Company  of  New  Jersey,  with  an  amended 
charter  and  capital  increased  from  $1,000,- 
000  to  $1 10,000,000.  This  corporation  was 
authorized  to  own  the  stock  of  any  of 
the  different  corporations  connected  with 
the  Standard  Oil  Company,  and  to  buy 
from  all  parties  who  own  such  stock  when- 
ever  they   desired    to    sell.1     "The   new 

1  A  copy  of  the  charter  of  the  company  is  given  in 
Report  of  the  Industrial  Commission,  1900,  i.,  p.  1228. 

128 


The  Standard  Oil  Company 

Standard  Oil  Company  of  New  Jersey," 
said  the  Industrial  Commission  in  1900, 
"has  recently  been  formed  with  the  in- 
tention of  transferring  the  stock  of  the  dif- 
ferent corporations  into  the  stock  of  the 
new  company,  so  that,  when  the  transfer 
is  finally  made,  one  single  corporation,  the 
Standard  Oil  Company  of  New  Jersey,  will 
own  outright  the  property  now  owned  by 
the  separate  companies  which  are  com- 
monly known  and  mentioned  together  un- 
der the  name  of  the  Standard  Oil  Com- 
pany. This  combination  at  present  has 
no  formal  unity.  It  has  a  practical  unity 
as  great  as  it  will  have  probably  after  the 
complete  change  into  the  New  Jersey  com- 
pany is  affected."1  Since  1900  about  $97,- 
000,000  of  the  capital  stock  of  this  com- 
pany has  been  used  to  purchase  at  par  the 
stocks  and  properties  of  the  other  Stand- 
ard companies,  the  capitalization  of  which 
was  approximately  $97,000,000,  but  whose 

'  Report  of  the  Industrial  Commission,  1900,  i.,  p.  11. 
9  129 


The  Rise  and  Progress  of 

good -will  and  earning  power,  as  repre- 
sented by  the  market  value  of  the  stock, 
aggregates  $650,000,000. 

Interesting  as  they  are,  the  particular 
forms  which  the  corporate  organization  of 
the  Standard  and  of  its  competitors  assume 
are  the  least  important  phase  of  their  com- 
petition. The  progress  of  both  the  Stand- 
ard and  the  independent  companies  has 
been  most  marked  in  recent  years  in  for- 
eign countries.  To  place  American  oils  in 
Eastern  markets  has  required  constant 
cheapening  of  production  and  transporta- 
tion. An  immense  outlay  for  additional 
pipe-lines,  more  and  larger  steamers  for 
ocean  transportation,  and  the  adoption  of 
the  tank-car  and  tank-wagon  system  of 
delivery  have  been  made  necessary,  so  that 
to-day  crude  oil  is  carried  almost  exclu- 
sively by  pipe  -lines,  railroad  transporta- 
tion is  confined  to  the  products  of  crude  oil, 
and  the  Standard  has  no  arrangements  ap- 
portioning to  the  railroads  any  share  of  the 
crude-oil  traffic.  At  present  it  is  in  its 
130 


The  Standard  Oil  Company 

methods  of  marketing,  by  which  it  meets 
competition  at  home  and  abroad,  that  the 
real  interest  lies. 

Until  1895  the  sale  of  crude  oil  by  the 
producers  had  been  on  the  exchange  at  Oil 
City.  Throughout  the  eighties  the  mar- 
ket in  the  exchange  had  been  wildly  spec- 
ulative, but,  gradually,  less  and  less  oil 
came  to  be  sold  on  exchange ;  and,  finally, 
on  January  23,  1895,  the  Seep  Purchasing 
Agency  of  Oil  City,  on  behalf  of  the  Stand- 
ard Oil  Company,  posted  a  notice  that 
thereafter  the  prices  paid  by  it  to  oil  pro- 
ducers "will  be  as  high  as  the  market  of 
the  world  will  justify,  but  will  not  neces- 
sarily be  the  price  bill  on  the  exchange 
for  certificate  oil."  The  Seep  Purchasing 
Agency  purchases  for  the  Standard  Oil 
Company  eighty  per  cent,  of  the  crude  oil 
produced  in  Pennsylvania  and  Ohio,  and 
by  its  action  it  fixes  the  price  of  crude  oil 
in  the  oil  regions.  "We  have  before  us," 
says  Mr.  Archbold,  "daily  the  best  in- 
formation obtainable  from  all  the  world's 
131 


The  Rise  and  Progress  of 

markets  as  to  what  the  offerings  are,  and 
as  to  what  it  is  possible  to  sell  for ;  and  we 
make  from  that  the  best  possible  consensus 
of  prices,  and  that  is  our  basis  for  arriving 
at  the  current  price." *  In  the  period  from 
1895  to  the  present,  it  may  be  added,  the 
difference  between  the  price  of  crude  oil 
and  the  price  of  refined  oil  has  remained 
almost  constant,2  which  shows  that  this 
power  of  fixing  the  price  of  crude  oil  has 
not  been  abused,  in  spite  of  the  fact  that 
the  Standard  Oil  Company  during  these 
years  refined  over  eighty  per  cent,  of  the 
output  of  oil.8 

By  its  control  of  the  pipe-line  systems 
the  Standard  Oil  Company  maintains  its 
advantage  over  the  independent  refiners 
of  the  oil  regions.     The  practice  of  the 

1  Report  of  the  Indttstrud  Commission,  1900,  i., 
p.  571.     See  also  pp.  142.  145. 

3  "Industrial  Combinations  and  Prices."  by  J.  W. 
Jenks.  in  Report  oj  tstritd  Commission,  1900, 

i.,  p.  53. 

s  Report  of  the  Industrial  Commission,  1900,  i.,  p. 
560. 

132 


The  Standard  Oil  Company 

pipe-line  companies  is  to  receive  all  oil 
produced  in  the  wells  with  which  their 
pipes  are  connected,  gauging  the  amount 
and  recording  the  quantity  received  from 
each  producer.  The  producer  may  then 
receive  from  the  company  at  any  time  the 
value  of  his  oil  in  store  at  the  price  for 
that  day,  or,  instead,  may  receive  pipe- 
line certificates  which  are  negotiable  in 
the  open  market.  The  company  lays  pipes 
without  extra  charge  to  new  wells,  though 
they  be  fifteen  or  twenty  miles  distant. 
In  the  proper  management  and  extension 
of  the  pipe-lines,  more  than  in  any  other 
branch  of  the  business,  is  the  necessity 
for  large  investments  of  capital  apparent.1 
In  the  early  days  of  the  industry  the 
absence  of  these  facilities  completely  de- 
moralized the  business;  and  for  the  ade- 
quate management  of  the  lines  no  com- 
pany except  the  Standard  has  been  ready 
and  able  to  make  the  necessarily  enormous 

1  Report  of  tJte  Industrial  Commission,  i.,  pp.  285, 
553.  799- 

133 


The  Rise  and  Progress  of 

investment  of  capital.  With  their  scant 
resources  the  smaller  companies  were  un- 
able to  respond  to  the  slightest  sudden 
demand  for  new  facilities.  The  superior- 
ity of  the  Standard  Oil  Company,  in  this 
particular,  was  clearly  shown  in  the  sudden 
development  of  the  McDonald  field  in  189 1. 
In  July  of  that  year  the  output  of  the 
McDonald  field  was  three  thousand  barrels 
daily.  By  the  middle  of  August  it  had 
reached  fifteen  thousand  barrels.  By  the 
first  of  September  the  Standard  Oil  Com- 
pany, through  its  ally,  the  National  Transit 
Company,  was  able  to  handle  twenty-six 
thousand  barrels  a  day;  by  the  first  of 
October  it  could  handle  forty  thousand 
barrels  a  day;  and  when,  in  November, 
the  production  of  oil  reached  nearly  eighty 
thousand  barrels  per  day,  the  capacity  of 
the  pipe-lines  had  risen  above  that  figure. 
Iron  tankage  of  the  capacity  of  three 
million  barrels  was  erected  during  these 
months,  and  fifty -three  miles  of  pipe 
laid  in  a  territory  of  twelve  square 
134 


The  Standard  Oil  Company 

miles.1  Had  the  National  Transit  Company, 
with  its  $30,000,000  of  invested  capital,  not 
been  in  control,  it  may  be  seriously  doubted 
whether  local  enterprise  could  ever  have 
effected  so  remarkable  an  extension  of 
pipe-lines  in  so  short  a  time. 

Associated  with  its  advantages  in  trans- 
portation is  the  advantage  the  Standard 
Oil  Company  has  in  distributing  its  re- 
fineries in  strategic  locations.  Not  only 
is  a  saving  in  transportation  charges  thus 
effected,  but  advantages  accruing  from 
cheaper  land,  labor,  and  fuel  are  also  se- 
cured. To  gain  this  economy,  the  Stand- 
ard Oil  Company  spent  millions  in  new 
plants  near  New  York  and  Philadelphia.2 
It  bought  the  entire  output  of  the  refin- 
eries in  the  newly  discovered  oil  region 
in  Colorado,3  and  secured  control  in  1898 
of  seventy-five  per  cent,  of  the  refining 
business  in  Canada  ;4  and  for  the  same  pur- 

1  Report  of  the  Industrial  Commission,  1900,  i.,  pp. 
471-475.  2  Ibid.,  p.  649. 

3  Ibid.,  p.  384.  *  Ibid.,  p.  673. 

135 


The  Rise  and  Progress  of 

pose  it  has  recently  rebuilt  refineries  in 
Pennsylvania,  in  order  to  profit  by  the 
cheapened  fuel.1 

The  vexed  question  of  the  effect  of  the 
Standard  Oil  combination  on  the  price  of 
refined  oil  will  probably  never  be  settled. 
Opponents  of  the  Standard  Oil  Company 
declare  that  the  Standard  has  not  reduced 
the  price  of  refined  oil  as  compared  with 
crude  oil  to  any  such  degree  as  would  be 
the  case  under  open  competition.  The 
effect  of  the  combination,  they  point  out, 
is  to  be  gauged  only  from  the  margin  be- 
tween the  prices  of  refined  and  crude  oil; 
and  the  reduction  of  this  margin,  though 
steady,  is,  in  their  opinion,  by  no  means 
commensurate  with  the  improvements  in 
the  processes  of  refining.2  In  reply,  Mr. 
Archbold,  of  the  Standard  Oil  Company,  has 

1  Report  of  the  Industrial  Commission,  1900,  i. , 
p.  649. 

2  In  the  chart  accompanying  Professor  Jenks's 
report  on  "Industrial  Combinations  and  Prices," 
this  margin  is  graphically  shown.  Report  of  the  In- 
dustrial Commission,  1900,  i. 

136 


The  Standard  Oil  Company 

declared  that  his  company  is  unable  per- 
manently to  exact  excessive  prices.  Tem- 
porarily, it  might  have  such  power;  but, 
if  it  used  this  power  arbitrarily,  it  would 
provoke  heavier  competition.  There  is, 
he  admits,  a  certain  amount  of  monopolis- 
tic power,  coming  from  the  aggregation  of 
capital  itself,  which  keeps  prices  higher 
than  they  would  be  under  severe  compe- 
tition; but  at  present  this  power  and  its 
effect  upon  prices  are  very  slight,  and  the 
lessened  cost  of  doing  business  on  a  large 
scale  more  than  compensates  in  lowered 
prices  for  the  slight  monopolistic  power 
of  getting  higher  prices.1  Perhaps  the 
most  significant  criticism  which  the  in- 
dependent refiners  pass  upon  the  price 
which  the  Standard  Oil  Company  gets  for 
its  oil  is  that  the  improved  methods  of 
utilizing  by-products  in  recent  years  have 
made  by-products  as  remunerative  as  the 
refined  oil  itself;  and  yet  the  margin  of 

1  Report  of  the  Industrial  Commission,   1900,  i., 
PP-  569.  57°- 

137 


The  Rise  and  Progress  of 

price  between  refined  oil  and  crude  oil 
during  this  period  has  only  slightly  de- 
creased. The  statement  has  frequently 
been  made  that  the  Standard  has  reduced 
its  prices  in  the  territory  of  its  com- 
petitors, and  maintained  prices  at  more 
profitable  rates  at  non-competitive  points.1 
Such  a  practice,  as  an  instance  of  ordinary 
business  competition,  is  not  extraordinary. 
A  similar  charge  could  be  brought  against 
most  large  businesses;  and,  as  those  who 
bring  the  charge  seldom  take  into  account 
the  varying  cost  of  transportation  to 
markets  of  varying  means  of  communi- 
cation, small  probative  value  can  be  at- 
tached to  their  bare  statement  of  dif- 
ference in  price.  Of  more  serious  nature 
are  the  charges  that  the  Standard  Oil 
Company  suborns  the  employees  of  its 
competitors  to  secure  information  as  to 
their  shipments  and  customers,  and  that 

1  A  mass  of  evidence  bearing  on  this  point  is  di- 
gested in  Report  of  the  Industrial  Commission,  1900, 
i.,  pp.  112-117. 

138 


The  Standard  Oil  Company 

it  resorts  to  unfair  tests  and  adulteration 
of  its  oils  and  to  the  copying  of  brands 
with  the  design  to  deceive  purchasers.  On 
all  these  points  the  evidence  is  at  best 
vague  and  inconclusive.  The  officials  of 
the  Standard  Oil  Company  testify  that  it 
is  their  practice  to  ask  their  salesmen  to 
keep  their  eyes  open,  and  to  inform  the 
company  as  to  those  from  whom  different 
dealers  are  buying;  but  they  flatly  deny 
the  charge  of  suborning  the  employees  of 
their  rivals,  and  very  conclusively  ex- 
plain away  the  charge  of  fraud  in  the 
copying  of  brands  and  in  the  tests  and 
adulteration  of  their  products.1  The  en- 
ergy of  the  Standard  Oil  Company,  in 
developing  new  departments  of  the  in- 
dustry, and  its  enterprise  in  undertaking 
the  production  of  all  the  chemicals  and 
materials  incidental  to  the  process  of  re- 
fining, has  been  recognized,  even  by  in- 
dependent refiners,   as  truly  great,   and 

1  Report  of  the  Industrial  Commission,  1900,  i., 
pp.  118-127. 

139 


The  Rise  and  Progress  of 

quite  beyond  what  smaller  competitors 
could  have  attempted.1  The  leading  by- 
products are  gasoline,  naphtha,  parafhne, 
lubricating  oils,  and  vaseline  products.  In 
addition  to  these,  fully  two  hundred  other 
by-products  are  extracted  and  used  for 
medical  purposes  and  for  aniline  dyes. 
To  utilize  all  these  by-products  requires 
the  greatest  specialization  of  methods,  en- 
couragement of  invention,  investment  of 
capital,  and  extension  of  plant.  A  refin- 
ery of  a  capitalization  of  $500,000  cannot 
realize  such  economies.2  The  undoubt- 
edly large  profit  accruing  to  the  Standard 
Oil  Company  from  the  utilization  of  by- 
products is  owing  entirely  to  its  superior 
mechanical  efficiency  and  organization. 

Aggregation  of  capital  has  brought  to 
the  Standard  Oil  Company  its  greatest 
advantage  in  the  development  of  foreign 

1  Lewis  Emery,  Report  of  the  Industrial  Commis- 
sion, 1900,  i.,  p.  627. 

2  Report  of  the  Industrial  Commission,  1900,  i.,  p. 

57o- 

140 


The  Standard  Oil  Company 

trade.  In  its  contest  on  the  Continent, 
and  especially  in  Russia,  with  the  great 
oil  interests  of  the  Rothschilds,  of  the  No- 
bel Brothers,  and  of  prominent  English 
capitalists,  its  success  has  been  entirely- 
due  to  its  great  capitalization .  Since  1 8  7 1 
the  export  of  petroleum  products  has  in- 
creased seven  times,  and  of  the  present 
exports  the  Standard  Oil  Company  ships 
ninety  per  cent.1  In  Russia  the  competi- 
tion between  the  Standard  and  the  Nobel 
Brothers  is  keen.  The  price  of  Russian 
crude  oil  is  lower  than  that  of  American 
oil ;  and  the  Nobels  are  at  present  shipping 
it  in  tank  steamers  to  India,  China,  and 
Japan.  To  meet  this  competition,  the 
Standard  Oil  Company  has  established 
agencies  all  over  the  world,  and  has  built 
bulk-tank-ships  for  transporting  its  prod- 
uct. With  the  exception  of  the  trade  in 
the  Far  East,  where  Russian  competition 
is  especially  keen,  the  export  price  of  oil 

1  Report  of  the  Industrial   Commission,  1900,  i., 
p.  568. 

141 


The  Rise  and  Progress  of 

has  always  been  kept  above  the  American 
price.1 

The  present  position  of  the  Standard 
Oil  Company  is  one  of  abundant  prosperity 
and  power.  It  is  opposed  by  a  combi- 
nation—  the  Pure  Oil  Company  —  which 
works  in  harmony  with  an  independent  sea- 
board pipe-line — the  United  States  Pipe- 
Line —  and  with  sixty -six  independent 
refineries.  The  Standard  controls  ninety 
per  cent,  of  the  export  trade  and  eighty 
per  cent,  of  the  domestic  trade.  By  its 
control  of  the  pipe-line  situation  it  has  be- 
come quite  independent  of  the  railroads. 
By  its  preponderant  purchases  of  crude  oil 
it  has  been  able  to  steady  and  roughly  di- 
rect the  course  of  prices  of  petroleum.  By 
its  advantages  in  locating  its  refineries  near 
their  several  markets  and  in  utilizing  by- 
products it  has  effected  enormous  econo- 
mies in  transportation  and  manufacture, 
and  increased  its  dividend  from   twelve 

1  Report  of  the  Industrial  Commission,  1900,  i., 
p.  791. 

142 


The  Standard  Oil  Company 

per  cent,  in  1892, *  when  the  Standard  Oil 
Trust  was  dissolved,  to  forty -eight  per 
cent,  in  1901.  The  power  of  the  Standard 
Oil  Company  is  tremendous,  but  it  is  only 
such  power  as  naturally  accrues  to  so  large 
an  aggregation  of  capital;  and  in  the  per- 
sistence with  which  competition  against  it 
has  continued,  in  the  quickness  with  which 
that  competition  increases  when  oppor- 
tunity for  profit  under  existing  prices  ap- 
pears, and  in  the  ever-present  possibility 
of  competition  which  meets  the  Standard 
Oil  Company  in  the  direction  of  every  part 
of  its  policy,  lie  the  safeguards  against  the 
abuse  of  this  great  power. 

1  Report  0}  the  Industrial  Commission,  1900,  i.,  p. 
799- 


THE   END 


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